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U.S. Stocks Rally to Record Highs

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08/01/2013 | 08:16am EDT

NEW YORK--Stocks kicked off the month by rallying Thursday to all-time highs in the wake of upbeat economic signals from around the globe.

The Dow Jones Industrial Average busted out of a three-session losing streak, climbing 128.48 points, or 0.8%, to 15628.02, to top last week's record high.

The S&P 500-stock index added 21.14 points, or 1.3%, to 1706.87, rising over 1700 for the first time to notch its own record. Industrial and financial stocks led all 10 of the S&P 500's sectors higher.

The Nasdaq Composite Index gained 49.37 points, or 1.4%, to 3675.74, its highest close since September 2000.

Thursday's gains started in Asia, after an unexpectedly strong reading on Chinese factory activity. The official manufacturing purchasing managers' index for July came in above the reading that separates expansion from contraction. Japan's Nikkei Stock Average surged 2.5%, while China's Shanghai Composite Index rose for the third day in a row, up 1.8%.

Europe added its own round of upbeat data. Markit's euro-zone purchasing managers' index showed expansion in July, while a similar reading from the U.K. expanded at the fastest pace in more than two years. The Stoxx Europe 600 climbed 1.2%.

In the U.S., the number of workers seeking new unemployment benefits fell to a five-year low last week, while a reading on manufacturing activity expanded in July at the fastest pace in 13 months.

"The economic backdrop continues to be favorable for equities," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. "We're starting to see evidence that developed international and emerging markets are stabilizing to show modest improvement. That's a net positive for multinational U.S. companies and a reason to expect U.S. stocks to trend higher in the latter part of this year and into 2014."

Heading into this year, waning growth in China ranked among the top concerns that could rattle global financial markets. Economic growth in China slowed in the second quarter, spurring worries about earnings for multinational corporations that do business there.

"People are scared about China, and so mediocre-to-better data causes some of the relief," said Michael Shaoul, chairman of Marketfield Asset Management.

Mr. Shaoul warned that China's issues are far from resolved. A separate, privately released Chinese manufacturing report on Thursday came in at an 11-month low. In June, worries about the health of China's economy helped intensify the biggest decline of the year for U.S. stocks.

But after years of stock mutual-fund outflows, investors are pumping money back into stock funds with the Dow up seven out of the past eight months. John Fox, director of research at Fenimore Asset Management, said his retail clients are the most receptive to riskier investments than at any time in years.

"People are receptive to ideas like putting money into small-cap stocks," he said. "Three years ago, you couldn't even have that conversation."

Investors are looking ahead at Friday's July jobs report for guiding the market's direction, as well future moves by the Federal Reserve.

On Wednesday, the Fed said that it would maintain its $85-billion-a-month bond-buying program that is meant to stimulate growth. Fed Chairman Ben Bernanke has said the central bank may begin to pare back its efforts later this year if the economy is strong enough. A robust jobs report would confirm to many traders that such action is in the offing.

"We don't think we've come too far," in stocks, said Joseph Amato, president and chief investment officer at asset management firm Neuberger Berman.

"That doesn't mean you won't see pullbacks. The big issue in is the Fed, its actions in the second half of the year, and interest rates," he said.

The yield on the 10-year Treasury note rose to 2.715% Thursday, the highest level in nearly a month, as prices fell.

Other central bankers confirmed their intention to stimulate growth. The European Central Bank on Thursday kept its key financing rate at a record low, and ECB President Mario Draghi said interest rates would remain at or below present levels "for an extended period of time." The Bank of England on Thursday also left its benchmark interest rate and bond-buying program unchanged,

Gold fell 0.1%, to settle at $1,311 a troy ounce, while oil gained 2.7%, to settle at $107.89 a barrel, as the robust economic data raised expectations for future demand for crude. The dollar fell versus the euro and rose against the yen.

In corporate news, Procter & Gamble rose 1.7% after the company's sales and unit volume improved, though quarterly earnings fell amid restructuring and other charges.

Exxon Mobil was one of few Dow members in the red, down 1.1%, after the company's quarterly earnings came in below Wall Street's estimates.

Yelp jumped 23% after the online-review company late Wednesday reported results that topped analyst estimates.

Write to Chris Dieterich at christopher.dieterich@dowjones.com

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL 0.62% 26828.47 Delayed Quote.-7.39%
EXXON MOBIL CORPORATION 2.89% 43.47 Delayed Quote.-39.45%
NASDAQ 100 0.38% 11096.539063 Delayed Quote.26.59%
NASDAQ COMP. 0.35% 10941.165728 Delayed Quote.21.51%
NIKKEI 225 1.70% 22573.66 Real-time Quote.-6.18%
S&P 500 0.36% 3306.51 Delayed Quote.1.98%
S&P/CITIC 300 INDEX 0.02% 4142.96 Delayed Quote.16.59%
S&P/CITIC 50 INDEX 0.01% 4001.45 Delayed Quote.6.46%
SHANGHAI STOCK EXCHANGE B SHARES INDEX -0.56% 240.7373 Real-time Quote.-5.73%
US DOLLAR / JAPANESE YEN (USD/JPY) -0.24% 105.772 Delayed Quote.-2.60%
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