NEW YORK — Investors grew more confident Wednesday after a better-than-expected reading on the service sector offered the latest incremental sign that the economy could be starting to mend some of its wounds.
After a quiet opening, stocks gained momentum after the Institute for Supply Management said the nation’s service sector shrank in January at a slower pace than in December. Still, it was the fourth straight month that business activity in the service sector contracted.
The trade association of purchasing executives said its index rose to 42.9 in January from a revised reading of 40.1 in December. Analysts had expected a reading of 39, according to a survey by Thomson Reuters. The ISM’s reading on the manufacturing sector, issued Monday, similarly came in above expectations even as it signaled continuing weakness.
The reading came as investors juggled several disappointing earnings reports with hopes that Washington would soon show further progress on its efforts to revive the economy. The Senate is getting closer to passing a $900 billion stimulus plan. Senators recently added money to the bill for medical research and tax breaks for car purchases. A similar plan has already cleared the House.
Weaker-than-expected fourth-quarter numbers from Kraft Foods Inc., Walt Disney Co. and Time Warner Inc. provided the latest reminder of the economy’s struggles.
“The drivers this week are less corporate earnings, and more what we’re hearing out of Washington, D.C.,” said Arthur Hogan, chief market analyst at Jefferies & Co.
The administration also seems closer to figuring out a plan for the nation’s ailing financial services industry, he added.
“There’s a lot of buzz about a rescue plan and a fiscal stimulus plan that are proving to be market friendly,” Hogan said.
In midmorning trading, the Dow Jones industrial average rose 67.14, or 0.83 percent, to 8,145.50.
Broader stock indicators also rose. The Standard & Poor’s 500 index rose 10.77, or 1.28 percent, to 849.28, and the Nasdaq composite index rose 26.53, or 1.75 percent, to 1,542.83.
Trading has been erratic in recent days. Investors coming off the market’s worst January ever have been searching for bargains among battered stocks and looking for signs the economy might be bottoming out.
The stock market finished Tuesday with a gain, sending the major indexes up more than 1 percent, thanks to reassuring data about pending home sales and better-than-expected earnings reports from companies like drugmakers.