Stocks Start Q3 with Gains

U.S. stocks closed higher Wednesday, reversing Tuesday's pullback, as investors continued to bet on the prospects and timing of an economic recovery while awaiting Thursday's June nonfarm payrolls and weekly jobless claims data.

Tuesday's gains came amid light trading, and followed data showing increases in June manufacturing and May pending home sales, and drops in May construction spending, June private-sector employment, and June domestic motor vehicle sales.

On Wednesday, the 30-stock Dow Jones industrial average finished higher by 57.06 points, or 0.68%, at 8,504.06. The broad Standard & Poor's 500-stock index rose 4.01 points, or 0.44%, to 923.33. The tech-heavy Nasdaq composite index added 10.68 points, or 0.58%, to 1,845.72.

Treasuries were mixed. The dollar index was off. Gold futures were higher. Oil futures were lower after the Energy Dept.'s weekly U.S. inventory report, which showed a 3.7 million barrel fall in crude stocks.AIG (AIG) shares sank after the insurer announced a 1-for-20 reverse stock split.

General Mills (GIS) enjoyed a strong jump in quarterly earnings.

Constellation Brands (STZ) announced sharply lower EPS that beat Wall Street forecasts.

In economic news Wednesday, the U.S. ISM index rose to 44.8 in June from 42.8 in May. The index has been on an upward climb since December's 32.9 (the lowest print since June 1980), reflecting continued slowing in the pace of the contraction, and it compares to 50.2 a year ago. The employment component climbed to 40.7 from 34.3. New orders dipped to 49.2 after rising above 50 to 51.1 in May. Prices paid increased to 50.0 from 43.5.

U.S. construction spending dropped 0.9% in May, from a revised 0.6% increase in April (was 0.8%). It marks the lowest level of spending since March 2004. Residential spending fell 3.5%, after rebounding unchanged in April (revised from 0.6%). Nonresidential spending inched up 0.1% after a 0.8% gain previously. Private construction spending fell 1.0% and marks its lowest level since April 2003. Public spending dipped 0.6%.

U.S. pending home sales index edged up 0.1% to 90.7 in May, after a revised 90.6 in April (was 90.3). That's a fourth straight monthly increase. Regionally, gains were seen in the West (2.2%) and Northeast (3.1%). On a year-over-year basis, sales are up 4.6% after a revised 3.8% increase in April (was 3.3%).

ADP reported that U.S. private payrolls fell 473,000 in June, compared to -485,000 in May (revised from -532,000). April's data were also revised up a bit to -518,000 from -545,000 previously. Goods producing jobs declined 250,000, manufacturing lost 146,000 jobs, while employment in the service producing sector dropped 223,000.

The headline data was worse than expected, though mitigated a bit by the upward revisions to April and May, notes Action Economics.

The Washington Post/ABC News consumer comfort index rose two points to -51 in the week ended June 28 from -53 a week earlier.

The Monster Employment Index slipped 1% in June as online job opportunities fell modestly.

San Francisco Fed President Janet Yellen said the central bank should not rush to raise interest rates or remove other accommodative policies as soon as the U.S. economy climbs out of recession. In fact, given prospects for a very slow recovery marked by high unemployment, the Fed's key interest rate could stay near zero for years, Yellen said.

The FDIC on Thursday is expected to propose new guidelines for private-equity investors seeking to buy failed banks, people familiar with the matter said. The issue is a tricky one for the FDIC. It wants to open the door for more types of investors to buy failed banks, reducing the potential cost to the agency of bank collapses. At the same time, it wants to prevent largely unregulated private-equity firms from acting too aggressively. The FDIC's proposal isn't final and could change before it's issued for public comment, people familiar with the matter said.

The euro zone manufacturing economy contracted less than initially thought in June but there was a significant difference among countries. German retail sales rose unexpectedly by 0.4%.

British manufacturing activity fell at its slowest pace in more than a year in June as output rose for the first time in 15 months.

The International Monetary Fund's board of directors plans to approve authorization to issue as much as $150 billion of bonds for the first time as it seeks new sources of funds, an IMF official said. Bloomberg News reported the board is scheduled to vote on the matter today, the official said on condition of anonymity. The bonds are part of a wider effort to seek new funding as the lender helps countries from Iceland to Pakistan combat the global financial crisis.

Bloomberg News reports China's manufacturing expanded for a fourth month as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending revive the world's third-largest economy. The official Purchasing Managers' Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

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