Stocks Finish Higher after Durable-Goods Jump

Durable goods orders jumped 1.3% in July, while Fannie and Freddie shares rose. Oil gained as Tropical Storm Gustav Advanced on the Gulf of Mexico

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U.S. stocks finished higher Wednesday in light pre-Labor Day holiday trading, following a report July durable goods orders rose by a more than expected 1.3% after surging 1.3% in June. Oil stocks rallied with oil futures, as Tropical Storm Gustav headed for the Gulf of Mexico's oil rigs.

On Wednesday, the Dow Jones industrial average finished higher by 89.64 points, or 0.79%, at 11,502.51. The broader S&P 500 index gained 10.15 points, or 0.8%, to close at 1,281.66. The tech-heavy Nasdaq composite index rose 20.49 points, or 0.87%, to end the session at 2,382.46.

On the New York Stock Exchange, 24 stocks rose in price for every seven that declined. The ratio on the Nasdaq was 18-10 positive.

Shares of Fannie Mae (FNM) and Freddie Mac (FRE) continued to recover after the U.S. Treasury denied rumors of an announcement regarding the government-sponsored enterprises, with a department spokeswoman saying the Treasury has "no plans" to take any such action on Wednesday.

"That still leaves Thursday, Friday, Saturday, and Sunday, however, according to the rumors this week of another chapter in the housing agency story towards government-sponsored recapitalization this weekend," wrote Action Economics analysts in a website posting Wednesday.

Meanwhile, Dow Jones reported that U.S. Federal Reserve Bank of Atlanta President Dennis Lockhart said: "The recent news on balance has been positive," noting Fannie's recent successful debt financing. He also said recent developments looked positive for Freddie as well. The comments seem to further support investors recent beliefs that their shareholdings would not be wiped out by government intervention. Also, a Bloomberg story noted the companies are enjoying profits at 10-year highs thanks to widening spreads and fees.

Other financial stocks were making headlines as well. Lehman Brothers (LEH) is still mulling the sale of its asset management unit to three private equity firms, according to an FT.com report. Meanwhile, Singapore’s Temasek Holdings won U.S. antitrust approval to raise its holdings in Merrill Lynch (MER) to as high as 14%.

Shares of Goldman Sachs (GS) were lower after a JPMorgan analyst cut EPS estimates on Goldman.

Orders for durable manufactured goods rose 1.3% in July, the second consecutive 1.3% rise. The jump was much better than the 0.1% increase expected by the market. The rise came in spite of a 25.7% drop in defense orders (after a 1.50% June increase). Civilian aircraft orders rebounded 28.0% after dropping 21.3% in June; this is always a volatile series and will swing on a single big order. Orders for nondefense capital goods excluding aircraft, the key indicator for capital spending, rose 2.6% after a 1.3% June increase. Durable shipments, a more stable indicator than orders, jumped 2.5% in July after a 0.9% June rise.

"The data are much stronger than expected for manufacturing, probably showing continued strong export demand," wrote S&P senior economist Beth Ann Bovino in a note Wednesday. S&P says the data should add to upward pressure on bond yields, but will be good for stocks.

"Manufacturing continues to do remarkably well given the weakness in the labor market and stresses in the financial system and likely continues to benefit from overseas growth," wrote John Ryding, an economist for RDQ Economics in New York. “However, this does not indicate strength in the overall economy and we do not see the Fed hiking rates in the second half of the year."

Traders were looking ahead to Thursday’s reports on second-quarter U.S. gross domestic product, which was expected to be revised to 2.4% from 1.9%; and initial jobless claims for the week ended Aug.