Stocks gain on good economic news

Good news on jobs and consumer spending pushed stocks higher again yesterday.

The Dow Jones industrial average and the Standard & Poor’s 500 index rose for a third straight day. Yields on Treasury securities fell for a second day, easing worries that a sudden spike in interest rates could hurt the economy.

Consumer spending rose 0.3% last month and incomes increased 0.5%, the most in three months, the government reported.

The number of Americans seeking unemployment benefits fell 9,000 to 346,000 last week. The report added to evidence that the job market is improving modestly.

Stocks have rallied this week as investors took advantage of lower prices after a sell-off last week that erased 560 points from the Dow on Wednesday and yesterday.

The market swooned after Federal Reserve Chairman Ben Bernanke said that the central bank could cut back on its stimulus later this year and possibly end it next year, if the economy continued to improve.

Even with the gains this week the index is still 293 points below where it was on June 18, the day before the Fed laid out its plans for how it might wind down its stimulus.

The central bank is buying 85 billion dollars (£55.7 billion) in bonds every month to hold down long-term interest rates and encourage borrowing and spending.

Fed stimulus has underpinned a stock market rally that started in March 2009 by encouraging investors to put money into risky assets.

“What’s driving that market up is that people are realising that they are in a ’win-win’ situation,” said Rick Robinson, a regional Chief Investment Officer at Wells Fargo Private Bank.

“If you have good economic data that should be good for stocks, if you have poor economic data ... that means the Fed will probably have its (stimulus) longer.”

The Dow closed up 114.35 points, or 0.8%, to 15,024.49. The S&P 500 index climbed 9.94 points, or 0.6%, to 1,613.20.

Nine of the 10 industry groups in the S&P 500 rose, led by financial stocks. Banks and insurers listed in the S&P 500 have gained 4% in the last three days. Materials companies were the only group that fell.

The Nasdaq composite rose 25.64 points, or 0.8%, to 3,401.86.

In a sign that investors were once again more confident in holding riskier assets, the Russell 2000 index of small-company stocks rose 16.09 points, or 1.7%, to 979.92, more than twice as much as other major indexes.