Lower Terror Alert, Upbeat Economic News Lift Stocks

Relieved that the U.S. government lowered the national terror-alert level and heartened by reports that Iraq would destroy some of its missiles, investors bid stocks higher Thursday, reversing much of the previous session’s big sell-off.

Positive economic news -- a report of an unexpectedly strong rise in U.S. factory orders for big-ticket items -- also fueled the advance.

Commodity traders, meanwhile, had a trying day as oil prices spiked to almost $40 a barrel before falling sharply and ending the day with a loss. Gold, which has zigzagged in recent days, fell more than 2%.

The Dow Jones industrial average closed up 78.01 points, or 1%, at 7,884.99, recovering much of Wednesday’s 102-point loss. The broader market also rallied. The Nasdaq composite index rose 20.26 points, or 1.6%, to 1,323.94 and the Standard & Poor’s 500 index advanced 9.73 points, or 1.2%, to 837.28.

Winners led losers by 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq. Trading was moderate as investors continued to shy away from making major commitments to stocks.

The advance was jump-started by news that the Bush administration was lowering the terror-alert level from orange -- the second-highest -- to yellow, suggesting that the threat of a terrorist attack in the United States has eased.

The market also took heart from a report that Iraq would comply with a United Nations order to begin destroying its Al-Samoud 2 missiles to head off a confrontation with the U.S.

In addition, investors welcomed the Commerce Department report that durable-goods orders to U.S. factories soared 3.3% in January, the best showing in six months.

That was better than the 1% advance economists had forecast and was seen as an encouraging sign that the battered manufacturing sector could be rebounding.

Analysts still are doubtful about the market’s ability to sustain gains, believing investors will hold back until it’s clear there will be a war and what its effect would be on the U.S. economy.

“Two issues are impacting the market: What kind of recovery are we going to have in the United States? The capital goods numbers were encouraging,” said Subodh Kumar, chief strategist at CIBC World Markets. “And [then] there’s Iraq.”

Indeed, Wall Street was disappointed by a report from the Commerce Department that showed sales of new homes plunged 15.1% last month, following a record 4.1% advance for December.

Investors sold off home builders such as Centex, which fell 17 cents to $55.56, and Los Angeles-based KB Home, which slipped 40 cents to $47.35.

Shares of major manufacturers traded higher on the durable-goods report. DaimlerChrysler rose 73 cents to $30.07, Maytag advanced 61 cents to $24.11 and Dow member 3M added $1.38 to $126.18.

Though Wall Street rallied in part on hopes for peace, gold fell $7.90 an ounce to $346.10 amid expectations that a war in Iraq would be over quickly, reducing demand for the metal as a haven.

Gold prices have dropped 9% from a six-year closing high Feb. 4, as traders became convinced that the U.S. would lead an attack that would quickly topple Iraqi President Saddam Hussein, analysts said. Rising stock prices and a strengthening dollar Thursday further reduced gold’s attraction as an alternative investment.

“The gold market went up in anticipation of a war, and now that it looks imminent the market is coming back down,” said Leonard Kaplan, president of Prospector Asset Management. “The only way gold goes up from here is if there is a war and it doesn’t turn out well.”

Crude oil for April delivery closed at $37.20 a barrel, down 50 cents, on the New York Mercantile Exchange. Oil rose to $39.99 a barrel during the session, the highest price since Oct. 12, 1990, when Iraq’s occupation of Kuwait led to the cutoff of exports from both nations.

“We tried to see if we could reach $40 and we got real close, then it started falling,” said Tim Evans, an energy analyst with IFR Pegasus.