Economic recovery? Markets buying it all the way

Financial markets were dominated by one basic bet on Monday: The economic recovery is real and is unlikely to fizzle soon.

U.S. stocks rallied broadly, commodity prices surged and yields on long-term Treasury bonds rose to their highest levels in at least 17 months on the heels of another batch of upbeat economic reports.

The Dow Jones industrial average neared the 11,000 mark, rising as high as 10,987 before pulling back. The Dow ended the day up 46.48 points, or 0.4%, to 10,973.55, its highest since Sept. 26, 2008.

Most broader market indexes posted bigger gains. Small-company stocks, a classic bet on domestic economic strength, had their best day in a month: The Russell 2,000 small-stock index jumped 2% to 697.65, also the highest since Sept. 26, 2008.

Year to date the Russell index is up 11.6%; the Dow is up 5.2%.

Commodity traders also are riding recovery hopes -- and they aren?t doing consumers any favors: Near-term crude oil futures in New York soared $1.75, or 2.1%, to $86.61 a barrel in New York, a fresh 17-month high. Oil traded as low as $71 a barrel in early February.

The Institute for Supply Management on Monday reported surprising strength in the services sector of the economy in March, and the National Assn. of Realtors said pending sales of existing homes had jumped 8.2% in February.

Those reports followed the government?s March employment data on Friday, which showed the economy added a net 162,000 jobs last month, the most in three years. The stock market was closed on Friday, so Monday was equity investors? first chance to react to the jobs number.

The recent data ?suggest the recovery that began last year has momentum and is broadening, not faltering,? said Michael Darda, chief economist at MKM Partners in Greenwich, Conn.

But that also fed expectations for higher interest rates. The yield on the 10-year Treasury note, a benchmark for mortgage rates, rose as high as 4% during the session and ended at 3.99%, up from 3.94% on Friday and the highest since October 2008.

The Treasury market also was under pressure from the government?s heavy borrowing calendar this week. The Treasury will auction $40 billion of three-year notes on Tuesday, $21 billion of 10-year notes on Wednesday and $13 billion of 30-year bonds on Thursday.

The question few Wall Street bulls seem to be asking at the moment: How much higher can oil prices and long-term interest rates go before causing the stock market indigestion?

-- Tom Petruno

Photo: A trader on the NYSE floor on Monday. Credit: Richard Drew / Associated Press