Stocks on Wall Street rallied Monday as investors shrugged off some negative figures on the U.S. economy and reacted positively to unconfirmed reports that officials in Europe were developing plans to confront the continent’s fiscal crisis.
At the close of trading, the Dow Jones industrial average was up 2.5 percent, adding 272.38 points, to 11,043.86. The Standard & Poor’s 500-stock index rose 2.3 percent, or 26.52 points, to 1,162.95. The Nasdaq composite index was up 1.35 percent, or 33.46 points, to 2,516.69.
A spokesman for the European Commission confirmed that discussions were under way on plans to extend the effectiveness of the eurozone’s bailout fund, perhaps expanding the borrowing power of the fund but not the amount of money nations were contributing. But as has often been the case, European leaders Monday seemed to have different perceptions of what was being discussed and how likely it was that the proposals would find support.
Even so, investors moved to buy stocks and drove down the prices of haven assets like U.S. Treasury bonds and gold. Analysts said the markets’ response showed the hunger for a political solution to Europe’s sovereign debt crisis, as well as a belief that stocks might have dropped too far in recent days.
“People woke up this morning, looked at some vaguely positive news in Europe and said, ‘You know what, I’m willing to take a shot with stocks at these levels,’” said Kevin H. Giddis, executive managing director and president for fixed income capital markets at Morgan Keegan & Co.
Monthly new home sales in the United States hit a six-month low in August at a seasonally adjusted annual rate of 295,000 homes, down from 302,000 in July. Prices were down 8.7 percent, the Commerce Department reported. Separately, a forecast of third-quarter earnings based on data by Thomson Reuters Corp. predicted that the earnings of S&P 500 companies would rise 13.7 percent, down from an earlier forecast of 17 percent.
Markets have tumbled in recent weeks on grim economic news. Wall Street suffered through one of its worst days of the year Thursday after the Federal Reserve said it saw “significant downside risks” to the country’s economic outlook. But analysts say the markets have grown somewhat numb to such news.
Gold prices were down for a fifth consecutive day. They fell more than $100 before recovering to close at $1,622 an ounce, down from a peak of nearly $1,900 on Aug. 22. Analysts attributed the drop to investors looking for cash, but some also described it as a correction for a commodity that has reached historic highs in recent weeks. But James Steel, an analyst at HSBC, said the dip was an indication of volatility in an uncertain market, rather than a sign that the market for gold may be turning.
“The issues that have pushed the market up for the last three years — the EU sovereign debt issues, our mounting debt issues, the structural issues in the dollar, and geopolitical risks — none of those have been solved in the last four days,” he said. “That would argue that the bull market in gold is not over.”