The stock market turned positive as investors shook off a handful of weak economic reports and snapped up biotech shares and other defensive plays.
The Nasdaq tech barometer moved higher on the biotech play as Amgen and others in the industry reversed earlier losses. The Dow and S&P 500 also moved into green numbers as bank rose amid a wave of aggressive government intervention to clean up balance sheets in the financial sector.
As the market awaits Friday's Labor Department jobs number, separate private reports showed joblessness in November hitting seven-year highs, while a productivity report indicated worker output slowing though not by as much as analysts had thought.
But the market actually gained some when the the Institute for Supply Management said its non-manufacturing index came in at 37.3 versus 44.4 in October.
The drop in the ISM number raised hopes for a Federal Reserve rate cut. Fed fund futures have now fully priced in a half-percentage-point, or 50 basis-point, rate cut this month.
"People are expecting every number to be bad, so it's the relative degree of badness so to speak--how bad is the number compared to what predictions were supposed to be," Liane Feldstein, OptionsCity trading consultant, said on CNBC. "So I really don't think people are as disheartened as they were a couple months ago."
At the same time, mortgage applications staged their largest one-week surge ever, gaining 112 percent as refinancings soared 203 percent following aggressive government moves to buy mortgage-backed securities. Mortgage rates for a 30-year loan fell to 5.47 percent in November.
Shares of home builders erupted on the news, sending industry leaders Hovnanian and Lennar soaring.
Marvell Technology led the Nasdaq rally after analysts said the chip maker was doing a good job controlling expenses and faced a bright future.
Research in Motion staged an improbable turnaround even after the BlackBerry maker cut its third-quarter earnings and revenue goals. The company said economic weakness and a stronger US dollar contributed to its troubles but the news seemed to be overshadowed by Marvell's performance.
In another big move higher, Constellation Energy shares surged after French utility company Electricite de France said it will challenge Warren Buffett's planned takeover of the wholesale power generator with a $4.5 billion joint venture proposal.
On the Dow industrials, Citigroup posted another day of nice gains to lead the index, while Caterpillar also looked strong on the heels of the mortgage news. Alcoa led bluechip decliners.
Elsewhere, General Motors President Fritz Henderson reiterated on NBC's "Today" show that bankruptcy is not an option for the industry and that the new bailout plan it will present Congress is the best option. GM shares tumbled at the opening.
In more economic news, the Federal Reserve's Beige Book is out at 2 pm.
Fed Governor Randall Kroszner spoke on the mortgage crisis at 10:15 am in Washington and Richmond Fed President Jeffrey Lacker is speaking at 1 pm in Charlotte, N.C.
Market internals were positive, with advancers beating decliners by a 1.6 to 1 margin on fairly light volume of 445 million shares by 11:30 ET. There were 37 new lows against three new highs.