Stocks surge on declining oil prices

Wall Street rallied Tuesday as oil prices tumbled, the service sector reported strong growth, and investors embraced large-cap stocks such as Wal-Mart Stores Inc., Coca-Cola Co. and Home Depot Inc. The Dow Jones industrial average gained more than 141 points.

Investors rejoiced as crude oil and gas futures dipped following the decision by industrialized nations to release 60 million barrels of crude from strategic stockpiles in the wake of Hurricane Katrina. A barrel of light crude settled at $65.85, down $1.61, on the New York Mercantile Exchange, while gasoline prices on the exchange fell 13 cents to $2.05 per gallon.

“Today was a relief rally; it was an oil price relief story,” said Lynn Reaser, chief economist of the investment strategies group at Bank of America. “Oil prices are still very high, but much more moderate than the worst fears of last week.”

The Dow rose 141.87, or 1.36 percent, to 10,589.24, its best one-day gain since July 8.

The Standard & Poor’s 500 index gained 15.37, or 1.26 percent, to 1,233.39, its best session since April 21. The Nasdaq composite index added 25.79, or 1.2 percent, to 2,166.86 for its best point gain since July 19.

Bonds fell as stocks rose, with the yield on the 10-year Treasury note rising to 4.09 percent from 4.02 percent late Friday. The U.S. dollar was mixed against other major currencies. Gold prices were lower.

Stocks started the session substantially higher after the positive report on business activity in the services sector. The Institute for Supply Management, which surveys 370 U.S. businesses, said its non-manufacturing index rose to 65 percent in August from 60.5 percent in July.

Hopes that interest rates would stop climbing also buoyed the markets. Last week’s softer-than-expected economic data reinforced some traders’ belief that the Federal Reserve would stop its year-plus campaign of short-term interest rate hikes earlier than it had planned, said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco.

Advancing issues led decliners by more than 2 to 1 on the New York Stock Exchange where preliminary consolidated volume was 1.93 billion shares, an increase from the 1.64 billion shares traded on Friday.

The Russell 2000 index of smaller companies rose 11.15, or 1.68 percent, to 674.48.

Overseas, Japan’s Nikkei stock average fell 0.28 percent. Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index rose 1.19 percent, and France’s CAC-40 rose 0.96 percent.