Stocks Shoot Higher as Home Sales Gain

Stocks posted solid gains Monday on the strength of good news from the housing and manufacturing sectors, but the move higher was limited by a hard-line tax statement from the Obama administration.

Stocks popped higher off news that pending home sales gained 3.2 percent in March, better than expected and perhaps a further indication that the real estate market is nearing a bottom.

At their highs, the Dow industrials and the Standard & Poor's 500 each gained more than 2 percent while the Nasdaq tech gauge was close behind. The indexes pared some of those gains, though, after Treasury Secretary Timothy Geithner said the administration would end "indefensible" tax breaks and loopholes that unfairly benefited some companies and well-off individuals.

Some positive earnings results and optimism over bank stress tests also boosted the market move, as Sprint Nextel shares surged after the company beat Wall Street estimates. Hopes that the swine flu epidemic won't be as bad as feared also lifted the market's mood.

"Markets are very resilient at this stage," Christian Gattiker, head of research at Julius Baer, said. Investors are expecting a "rather benign" outcome from the financial crisis, he added.

The National Association of Realtors reported the gain in its pending sales index, which represents housing sale contracts that have not been closed. The organization noted that it would need to see a string of positive monthly results before a true recovery is seen.

At the same time,

construction spending also rose in March

for the first time in six months, edging up 0.3 percent, according to government data on Monday.

The gain contrasted with analysts' forecasts of a 1.5 percent drop in spending.

Meanwhile, the stress test results are expected to show that the banks may have to raise $150 billion or more in fresh capital, according to Reuters.

Bank of America is working on plans to raise more than $10 billion in fresh capital while it and Citigroup launched last-ditch attempts to convince the U.S. government they do not need to bolster their balance sheets, the Financial Times reported. A Wall Street Journal report indicated Citi may have to raise as much as $10 billion as well.

Bank stocks were broadly higher, led by Wells Fargo .

Alcoa shares surged past the $10 mark, where the stock has not closed since Jan. 9, to lead Dow gainers. The bluechip index saw only one decliner among the group, Microsoft . Wells Fargo gains remained strong even after news that the company would need to raise capital to meet stress test demands.

In earnings, Spint Nextel beat analyst estimates even as more postpaid customers defected to rival services and business customers canceled services due to the recession.

Sprint's net loss swelled to $594 million, or 21 cents per share from a loss of $505 million, or 18 cents per share in the same quarter a year ago.

But excluding unusual items, Reuters Estimates said that it would have posted a profit of 3 cents a share compared with average analyst estimates for a loss of 4 cents a share.

There was some dispute over whether the market was due for a pullback after a two-month rally, but the averages seemed intent on moving higher.

"This rally continues," Steve Massocca, of Wedbush Morgan Securities, told CNBC. "It's pretty clear that the worst is over for the economy right now."

Many observers believe the market found its low in March.

Bank of America Securities/Merrill Lynch raised both its support and resistance levels for the Standard & Poor's 500. The resistance is now 1050-1055 and support is at 825-845, said Mary Ann Bartels, head of technical market analysis, who added that historical trends show that an April rally helps thwart the usual appetite for selling in May.

"An up April has a tendency to neutralize a negative seasonal bias in May," Bartels wrote in a research note. "This implies that the market rally can continue."

Retail stocks also helped to spur Monday's rally.

Liz Claiborne shares gained more than 20 percent and Jones Apparel also posted gains after the latter reporte earnings that beat expectations.

Those worried about a market pullback focused on the relatively thin volume that has accompanied the rally.

About 620 million shares changed hands after three hours of trading on the New York Stock Exchange. Gainers beat losers 3.6 to 1.

Elsewhere in earnings, Tyson Foods posted a quarterly loss that was worse than expectations, due to lower meat sales and additional tax expenses. Shares fell 3.3 percent premarket.

Kansas City Federal Reserve President Thomas M. Hoenig will speak on the financial crisis at 12:30 pm New York time in New York, and Richmond Fed President Dr. Jeffrey Lacker will give his economic outlook at the same time in Charlottesville, Va.

© 2009 CNBC.com