Commodities surge drives stock market higher

NEW YORK — Investors rushed into stocks for a second day amid signs that the global economy is recovering and as a weak dollar pushed up prices of commodities.

The Dow Jones industrial average jumped 110 points, bringing its two-day advance to more than 200, as major stock indicators rose more than 1 percent.

The drop in the dollar came as Australia became the first major country to raise interest rates. That dented demand for the dollar as did speculation that several oil-producing countries were considering ending the dollar’s role in crude pricing.

The dollar’s drop sent oil higher and gold jumped to a record high.

Australia’s rate increase reinforced expectations that world governments expect the economy to strengthen. The country’s central bank governor said it was time to begin reducing the economic stimulus provided by low interest rates and that the risk of major economic contraction in the country was over. The dollar hit a 14-month low against the Australian dollar.

Leaving interest rates low for too long can ignite inflation but raising them too quickly can choke off a nascent recovery. Dean Curnutt, president of Macro Risk Advisors, cautioned that other central banks are unlikely to soon follow Australia’s lead because the recession exacted a heavier toll in the U.S. and Europe.

“Other large, central banks are not in a position to do that yet,” Curnutt said.

Curnutt said the Federal Reserve is still focused on avoiding deflation and trying to boost asset prices, such as home values, to help rebuild wealth.

The dollar’s slide followed an article in a British newspaper, The Independent, saying that secret meetings were taking place among Arab states, China, Russia, Japan and France, to end dollar dealings for oil and move to a basket of currencies including the euro, the yen and the Chinese yuan. Officials in several of the countries either denied that talks were occurring or said they had no knowledge of them.

The slumping dollar helped stocks for a second day. Stocks jumped Monday after two consecutive losing weeks following news that the U.S. service industry grew for the first time in a year. Upbeat comments about the nation’s largest banks also drew buyers, as did a drop in the dollar.

Commodities are priced in dollars, and when the currency falls commodities become more appealing to foreign buyers.

In early afternoon trading, the Dow rose 109.20, or 1.1 percent, to 9,708.95 after rising 112 on Monday. The Standard & Poor’s 500 index rose 12.54, or 1.2 percent, to 1,053.00, while the Nasdaq composite index rose 30.52, or 1.5 percent, to 2,098.67.

The Dow jumped 1.2 percent Monday, while the S&P surged 1.5 percent.

Metals and mining and energy stocks rose as commodities surged. Crude oil rose 86 cents to $71.27 per barrel on the New York Mercantile Exchange, while gold rose above $1,040 an ounce.

Aluminum producer Alcoa Inc., which is due to report third-quarter earnings Wednesday, rose 52 cents, or 3.9 percent, to $13.94. Barrick Gold Corp. rose $1.79, or 4.9 percent, to $38.70, while Newmont Mining Corp. jumped $2.67, or 6.2 percent, to $45.87. Oilfield services company Schlumberger Ltd. rose $1.54, or 2.7 percent, to $59.50.

David Kelly, chief market strategist at J.P. Morgan Funds, said the stock market has room to advance further although it is already up 50 percent since March. Stocks are still down from their peak two years ago.

He said the long-term move in the stock market should be up as the economy improves and problems like unemployment slowly get better, a process that he expects to take years.

“As the economy gradually pulls itself back together and we march back to full employment the stock market will reflect that,” he said.

Bond prices slipped, sending the yield on the benchmark 10-year Treasury note up to 3.26 percent from 3.23 percent late Monday.

Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 597.4 million shares compared with 510.4 million shares traded at the same point Monday.

The Russell 2000 index of smaller companies rose 10.16, or 1.7 percent, to 601.27.

Britain’s FTSE 100 gained 2.3 percent, Germany’s DAX index rose 2.7 percent, and France’s CAC-40 gained 2.6 percent. Japan’s Nikkei stock average rose 0.2 percent.