Inspired by a bigger-than-expected rise in factory orders, investors sent stocks sharply higher Wednesday, taking advantage of lower prices after last week's declines and extending the market's advance to a second day. The Dow Jones industrials surged 102 points.
Surprisingly strong sales at Starbucks, brokerage house upgrades and a legal victory for Merrill Lynch contributed to the gains.
"The market continues to look forward to better economic news in the second half of the year," said Lynn Reaser, chief economist and senior market strategist, Banc of America Capital Management. Investors "are beginning to believe the recovery story and want to be invested to profit from it."
The Dow closed up 101.89, or 1.1 percent, at 9,142.84, having advanced 55.51 Tuesday in late-day bargain hunting.
The broader market also rallied. The Nasdaq composite index rose 38.60, or 2.4 percent, to 1,678.73, having gained 17.33 the previous session. The Standard & Poor's 500 index advanced 11.43, or 1.2 percent, to 993.75, following Tuesday's win of 7.82.
Volume was light because many traders were absent ahead of the Independence Day holiday. Trading will end early today and the market will be closed Friday.
Wall Street welcomed news from the Commerce Department that orders to U.S. factories rolled in at a total value of $320.6-billion in May, representing a 0.4 percent increase from April's level, stronger than the flat reading economists predicted. The increase came after orders fell by a sharp 3 percent in April from March, the steepest decline since November 2001.
But whether the market can hold its gains depends on economic news continuing to be strong and on the second-quarter earnings reports that companies begin releasing later this month. Investors are particularly anxious to hear what companies say about the third and fourth quarters, having placed their bets on Wall Street for a second-half earnings and economic recovery.
"There is always something the market is looking ahead to. Tomorrow is the next big roadblock with (June) unemployment data coming out," said Michael Sheldon, chief market strategist at Spencer Clarke LLC.
Among Wednesday's winners, Starbucks advanced $1.64 to $26.97 after the company announced its June sales widely exceeded Wall Street's expectations.
Microsoft rose 73 cents to $26.88 after Merrill Lynch upgraded it to "buy" from "neutral."
Jefferies Group climbed $3.53 to $54.10 after Wachovia Securities raised its rating on the investment banker to "outperform" from "market perform."
Merrill Lynch advanced 44 cents to $48.64 as federal judges over two days threw out lawsuits by investors blaming it for the money they lost after the Internet bubble burst. Some analysts attributed Tuesday's late-day buying to Merrill Lynch's legal win, saying it would lift the cloud hanging over brokerages and investment houses.
Baxter International fell 57 cents to $25.01 after the health products and services company reduced its yearly earnings estimate and announced it was cutting 2,500 jobs, or 5 percent of its work force.
Advancing issues outnumbered decliners slightly 3 to 1 on the New York Stock Exchange. Consolidated volume was a light 1.88 billion shares, but above Tuesday's 1.85 billion.
The Russell 2000 index, which tracks smaller company stocks, rose 9.72, or 2.2 percent, to 458.89.
Overseas, Japan's Nikkei stock average finished Wednesday up 3.4 percent. In Europe, Britain's FTSE 100 advanced 1.1 percent, France's CAC-40 rose 2.2 and Germany's DAX index climbed 3 percent.