Stocks start August with big rally after better-than-expected report on manufacturing

The stock market began August with a huge rally after economic reports from around the world revived investors' faith in the global recovery.

The Dow Jones industrial average rose 208 points Monday. All the major stock indexes rose about 2 percent.

The first day of the month brought a stream of news that reassured investors who have worried about a slowing of economic growth in the U.S., China and Europe. Manufacturing was a common thread:

— The Institute for Supply Management's index of U.S. manufacturing activity during July was better than the market expected. Traders were pleased because the report still showed that manufacturing is growing.

— A manufacturing report for the 16 countries that use the euro was revised higher for July and showed that the European economy is recovering faster than expected. Strong earnings reports from European banks also reassured the market, especially after the continent's rising debt problems helped trigger a spring plunge in stocks.

— From China came news that industrial growth was moderate enough that Beijing isn't likely to take steps to slow that country's economy. Investors have periodically sold stocks on concerns that China's economy would slow and pull others down with it.

Monday's news was encouraging after months of reports showing the recovery was weakening contributed to sharp swings in stock prices. Strong earnings in July helped drive stocks to their best month in a year, but the rally was fading at the end of the month on new worries about the economy. The ISM report is significant because it is the first major reading of the economy from July and investors are trying to determine just how strong the recovery will be in the second half of the year.

Monday's big advance was a bit of a surprise for traders who are used to more subdued trading as August arrives. Over the past 12 years, the Dow has fallen nine times on the first trading day in August, although it has risen the past three years. August in general is seen as a volatile month for stocks, largely because many traders are away on vacation. That makes for low trading volumes and exaggerated price moves.

Some analysts were cautious even as stock prices jumped.

"The market move at the margin is all about incremental news, and the incremental news today was better," said Alan Gayle, senior investment strategist for RidgeWorth Investments in Richmond, Va.

"Fundamentally, I do believe the pace of the (economic) expansion is slowing and I think that's going to weigh on the markets as we go through the second half of the year."

According to preliminary calculations, the Dow Jones industrial average rose 208.44, or 2 percent, to 10,674.38. The Standard & Poor's 500 index rose 24.26, or 2.2 percent, to 1,125.86, while the Nasdaq composite index rose 40.66, or 1.8 percent, to 2,295.36.

Six stocks rose for every one that fell on the New York Stock Exchange where volume came to a light 1 billion shares.

With stocks rising sharply, bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.97 percent from 2.91 percent late Friday. Its yield is often used as a benchmark to set interest rates on mortgages and other consumer loans.