NEW YORK — Wall Street extended its rally with modest gains in the major indexes following two days of sharp advances, despite economic readings that painted a mixed picture of the economy.
Though the indexes rose, declining issues narrowly outpaced advancers on the New York Stock Exchange.
On Tuesday and Wednesday, the market posted its biggest two-day rally in five years. Hopes have been growing that financial companies may be starting to recover from the credit crisis and that the Federal Reserve may lower interest rates to calm the markets.
Wall Street's anticipation of a rate cut followed comments from a Fed official Wednesday. Fed Chairman Ben Bernanke also hinted in a speech Thursday evening that another cut may be needed to bolster the economy.
Oil prices spiked early Thursday then fell back somewhat after a fire at an Enbridge Energy pipeline carrying crude from Canada to the Midwest.
The oil price recovery gave some strength to energy stocks. Meanwhile, financial companies, which had shown gains Wednesday, retreated as did retailers following a weak showing by Sears Holdings Corp.
Aside from a reading on third-quarter growth, economic news didn't offer investors much reason to cheer.
"The data's weak, and says to us that the Fed needs to stay engaged here," said Phil Orlando, chief equity market strategist at Federated Investors.
The Dow Jones industrial average rose 22.28, or 0.17 percent, to 13,311.73. In the three sessions since a pullback Monday, the Dow has jumped 568.29, of 4.5 percent.
Broader stock indicators also rose. The Standard & Poor's 500 index edged up 0.70, or 0.05 percent, to 1,469.72, and the Nasdaq composite index rose 5.22, or 0.20 percent, to 2,668.13.
Declining issues outnumbered advancers by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 3.43 billion shares compared with 4.45 billion traded Wednesday.
For the week, the Dow is up 2.55 percent, while the S&P is up 2.01 percent and the and the Nasdaq is up 2.75 percent. The pace of the gains, however, has been fast enough that a bit of profit-taking wouldn't come as a surprise on Wall Street. The declines that preceded the latest surge had been sharp as well, however. By the end of the day Monday, the market's major indexes had fallen more than 10 percent from levels in mid-October _ meeting the technical definition of a correction.
Bond prices rose, with the yield on the benchmark 10-year Treasury note falling to 3.94 percent from 4.05 percent late Wednesday. Bond prices and yields move in opposite directions. The dollar rose against other major currencies, while gold prices fell.
Light, sweet crude for January delivery rose 39 cents to settle at $91.01 a barrel in choppy trading on the New York Mercantile Exchange. The rise in oil helped energy companies. Exxon Mobil Corp. rose 67 cents to $88.59, while ConocoPhillips advanced $1.10 to $78.82.
Among financials, Merrill Lynch & Co. fell 38 cents to $57.41, while Bank of America Corp. fell 22 cents to $44.63.
Stocks' fluctuations followed the mixed economic readings.
The Commerce Department reported that economic growth in the third quarter was 4.9 percent, stronger than originally thought, although analysts are anticipating a slowdown in the fourth quarter.
U.S. home prices showed a quarterly decline for the first time in 13 years in the third quarter, according to figures from the Office of Federal Housing Enterprise Oversight, which reported a 0.4 percent drop nationwide for the July-September period.
The economic reports came as investors awaited clarity on the Fed's direction on interest rates. In his speech Thursday before the Chamber of Commerce in Charlotte, N.C., Bernanke said Fed policymakers will need to be "exceptionally alert and flexible," considering that the odds have grown that the country could enter a recession, and a sharp cutback in consumer spending could send the economy into a tailspin.
That comment probably will be viewed as a sign the Fed, which has cut rates at each of its last two meetings, may do so again when it meets on Dec. 11.
Investors have sent stocks sharply higher in recent days in part because Fed Vice Chairman Donald Kohn suggested Wednesday that another interest rate cut could be in store.
Wall Street also has been calmed by evidence that companies hurt by subprime problems have found financial backers to help stem the damage.
In the latest such action, E-Trade Financial Corp. said on Thursday that Citadel Investment Group would provide $2.5 billion in cash to shore up the company's balance sheet. E-Trade also said Mitchell H. Caplan had resigned as chief executive.
E-Trade, which holds billions in risky mortgage debt, said it will sell its entire portfolio of asset-backed securities to Citadel for $800 million and book a $2.2 billion charge on the sale. E-Trade fell 46 cents, or 8.7 percent, to $4.82.
In other corporate news, Sears Holdings, parent of its namesake department store chain and Kmart, said profits plunged to a penny per share from $1.27 per share a year earlier due to lower sales and clearance markdowns. The stock fell $12.25, or 10.5 percent, to $104.09.
The Russell 2000 index of smaller companies fell 3.98, or 0.52 percent, to 766.06.
Overseas stock markets advanced. Britain's FTSE 100 rose 0.68 percent, Germany's DAX index advanced 0.54 percent and France's CAC-40 rose 0.66 percent. In Asia, Japan's Nikkei stock average closed up 2.38 percent, while Hong Kong's Hang Seng index rose 4.06 percent.
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