Stocks drift higher

Stocks rose modestly Wednesday as investors picked through a raft of reports on the economy released before the holiday-shortened session got under way.

The Dow Jones industrial average (INDU) was up 0.4% with about one hour left in the session. The Standard & Poor's 500 (SPX) index added 0.3% and the Nasdaq composite (COMP) advanced a few points.

Stocks fell Tuesday after two housing reports showed declines in sales of new and existing homes. A government report also showed the economy contracted in line with economists' expectations.

Trading is expected to be light, with many market participants on vacation. U.S. stock markets will close early at 1 p.m. ET and remain shut on Thursday for the Christmas holiday.

In addition to light participation, many investors have closed their books for the year and are not planning to make any large moves until 2009.

"We're looking for a pretty quiet, low- volume session," said Todd Salamone, director of trading at Schaffer's Investment Research in Cincinnati. "Most of the major market-moving news is out there already."

Salamone added that the market is hovering in the middle of its recent trading range and that it will probably stay there "barring any unexpected news."

Still, the market had a full roster of economic reports to digest, including one that showed a spike in jobless claims and another weak reading on personal spending.

"I think we'll continue to see unemployment rise and continue to see consumer spending drop," said Dean Barber, president of Barber Financial Group in Kansas City, Kan. These declines, combined with a high level of consumer debt, could result in a "prolonged and painful scenario" for the economy, he added.

Barber said he expects the Dow to retest its November lows in the weeks ahead, and that it could bottom out around 5,000 sometime in 2010.

"The market has factored in some bad news, but there's a lot out there that people don't really understand yet," he said.

Jobs: Before the opening bell, the Labor Department said weekly claims for unemployment benefits rose more than expected.

New jobless claims rose to 586,000 in the week ended Dec. 20. That's an increase of 30,000 from the previous week's revised figure of 556,000, and is more than the 558,000 total forecast by economists.

Wednesday's report revealed the highest number of jobless claims since Nov. 27, 1982, when initial filings hit 612,000.

Income and spending: The Commerce Department said both personal income and spending decreased in November.

Personal income dipped 0.2% after a modest 0.3% increase in October. The reading was expected to be flat.

Personal spending fell 0.6% versus a decline of 1% the month before. But the figure was better than the 0.8% decline that economists were expecting.

Durable goods: New orders of durable manufactured goods fell for the fourth month in a row, according to the Census Bureau.

Durable goods orders fell 1% to $1.9 billion in November. Excluding orders related to transportation, new orders increased 1.2%.

Still, the decline was not as sharp as had been expected. Economists had forecast durable goods orders to sink 3.1% after plummeting 6.2% in October - the biggest decline since 2006.

Sam Bullard, an economist at Wachovia Economics Group, said the decline "suggests order growth for durable goods should remain challenged throughout 2009."

Mortgages: As mortgage rates fall, applications for home loans and refinancing activity surged last week, according to the Mortgage Bankers Association.

The MBA's overall Market Composite Index, a measure of mortgage loan application volume, shot up 48% on a seasonally adjusted basis for the week ending Dec. 19.

The increase was driven by a 62.6% jump in the group's Refinance Index. But the Conventional Purchase Index also increased 17.7%. The only component of the overall index to fall was the Government Purchase Index, which largely tracks FHA loans, which slipped 3.4%.

Bonds: The benchmark 10-year note rose 3/32 to 114 31/32, and its yield held steady at 2.17%. The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.

Lending rates were mixed. The 3-month Libor rate held steady at 1.47%, according to Bloomberg. The overnight Libor edged up to 0.15% from 0.12% Tuesday. Libor is a key bank lending rate.

Other markets: In global trading, Asian markets ended lower with the Hang Seng in Hong Kong falling 0.26%. Major indexes in Europe fell in a holiday-shortened session. The DAX index in Frankfurt was closed.

The dollar fell versus the euro and the yen.

U.S. light crude oil for February delivery was down $1.33 at $37.65 a barrel in New York. Crude prices fell sharply after the government reported an unexpected decline in crude inventories.

COMEX gold for February delivery was up $5.40 to $843.50 an ounce.

Gasoline prices fell overnight to a national average of $1.655 from $1.659 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.