By Donna Kardos Yesalavich
U.S. stocks remained higher near midday Monday, as cheer over a bigger-than-expected jump in home resales and a statement from a Federal Reserve member that the U.S. should continue buying mortgage-backed securities pushed the Dow Jones Industrial Average to new intraday highs for the year.
The gains in stocks were led by the energy and materials sectors as crude-oil and metals futures climbed, while the dollar fell.
The Dow industrials (DJI) were was recently up 152 points, or 1.5%, to 10,470. Chevron Corp. (CVX) was the measure's best performer, climbing 3% as crude oil jumped above $79. .
Other top gainers included Caterpillar Inc. (CAT), which rose 2.5%, and J.P. Morgan Chase Co. (JPM), which climbed 2.4%. Just one of the Dow's 30 components was in the red: Merck & Co. (MRK), which edged 0.3% lower.
The Nasdaq Composite (RIXF) climbed 1.6%. The Standard & Poor's 500 (SPX) rose 1.6%, led by its energy and materials sectors amid the jump in crude-oil futures and as metal futures rose, with gold recently at $1170.2 an ounce after reaching a new record. .
The dollar slumped against both the euro and the yen, helping push the U.S. dollar index (DXY), which measures the dollar against a basket of six other currencies, down 0.8% recently. That marks a reversal of the trends from late last week, when stocks fell as investors shied from riskier parts of the market.
Reflecting that reversal, the Russell 2000 index (RUT) of small-capitalization stocks was up 2.2% recently, after reaching a new intraday high for 2009. Small-cap stocks are considered more risky due to their high volatility and low liquidity.
The stock gains were extended Monday after the National Association of Realtors said home resales increased by 10.1% to a 6.10 million annual rate from 5.54 million in September. Economists surveyed by Dow Jones Newswires expected a 2.3% increase in sales during October. .
That helped investors move even more strongly into riskier assets Monday as they bet that the Federal Reserve will keep controversial programs in place to support financial markets for longer than anticipated.
Federal Reserve Bank of St. Louis President James Bullard said Sunday in an interview with Dow Jones Newswires that the U.S. should continue buying mortgage-backed securities past the first quarter of 2010, when asset purchases are due to end. That helped offset worries from Friday, when the euro-zone central bank announced its first step in making it tougher for commercial banks to get loans.
Bullard's comments stood in sharp contrast to remarks from the European Central Bank last week and helped fuel the view that the U.S. will lag behind other economies globally in raising interest rates and removing the massive liquidity pumped into markets to stimulate growth. Reflecting that increasing divergence in interest-rate expectations, the euro gained almost 1% from Friday, touching the psychologically significant $1.50 level while the dollar was slipping against other key counterparts, also amid a broad rally in stocks and commodities.
Bob Lynch, a currency strategist at HSBC Bank USA in New York, said the stock market seemed to drive the dollar Monday, with both taking some cues from Bullard's dovish remarks. But he also believes a long-term trend for investors to add risk to their portfolios via stocks and commodities is reasserting itself Monday after a brief respite.
"I think it's very telling that the [stock] market is still near its highs," Lynch said.
Still, some participants remained on the defensive Monday, including Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati. "What we're having here is a skeptic's rally," with many portfolio managers buying despite their misgivings about the market's fundamentals, Wirtz said.
Wirtz's firm has been lightening its exposure to stocks and will continue to do so through the end of 2009, except in a few sectors such as energy, basic materials and technology, he said. Wirtz believes those categories are well-positioned to benefit from a return to growth in the global economy.
Among stocks in focus, LDK Solar Co. (LDK) jumped 9.4% after the Chinese maker of solar wafers and modules posted a surprise profit for the third quarter, breaking a string of three consecutive quarterly losses. .
Treasurys fell, with the 10-year note down 3/16 recently to yield 3.390%.