Stocks gain as economic view brightens

NEW YORK (MarketWatch) � U.S. stock gains on Thursday propelled the S&P 500 index to its highest finish since late 2007 as upbeat jobs and housing reports offered respite from politics and other concerns.

�The fact that housing is so robust is really good, and jobless claims were a lot lower than expected,� said David Kelly, chief market strategist at J.P. Morgan Funds. Both data points �show an economy with a fair amount of momentum going into the new year, and that�s positive,� he added.

The Dow Jones Transportation Average DJT �hit a record high as investors adopted a �buy the break��mentality. The index of 20 transport companies including shippers FedEx Corp. FDX �and United Parcel Service Inc. UPS , as well as airlines and trucking firms, is viewed as an indicator of economic activity.

The gains came after data had housing starts rising more than anticipated and jobless claims dropping to a five-year low, helping propel home builders and other consumer-discretionary companies to robust gains.

Rising above the 1,474 resistance level, the S&P 500 index SPX �rallied 8.31 points, or 0.6%, to 1,480.94, its highest close since Dec. 26, 2007.

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After a 122-point surge, the Dow Jones Industrial Average DJIA �ended at 13,596.02, up 84.79 points, or 0.6%.

The Nasdaq Composite index COMP �rose 18.46 points, or 0.6%, to 3,136.

Economic news buoyed the mood on Wall Street. The Commerce Department reported housing starts jumped 12.1% in December, the biggest gain since June 2008. Read: Housing starts jump in December.

�The residential data was a big surprise; we expected a gain, but we did not expect that gain,� said Elizabeth Ptacek, senior vice president and a senior credit real estate analyst at KeyBank.

Separately, the Labor Department reported applications for jobless benefits last week declined by 37,000 to 335,000, the lowest level since January 2008. Read: Initial jobless claims fall by 37,000.

The jobless-claims report �suggests that we�re likely to see nonfarm payrolls expand at perhaps a better rate than we�ve seen in recent months, and is keeping a bid in the market here,� said Eric Wiegand, portfolio manager at U.S. Bank Wealth Management.

�It�s a welcome reprieve from all of the concerns investors have been tracking regarding the activity or lack of activity in Washington,� he said.

�The labor and housing figures were really quite compelling and exceeded expectations rather handily in both cases,� Wiegand said of the data, which helped brighten views of the U.S. economy and diverted attention, even if only temporarily, from the coming debate in Washington over the debt ceiling and government spending.

House Republicans are mulling the idea of a short-term increase in the U.S. debt ceiling to allow for time to debate reduced government spending, Budget Committee Chairman Paul Ryan told reporters, according to media reports. The Wisconsin Republican spoke Thursday at a press conference outside Williamsburg, Va., where House Republicans are meeting to consider strategy. Read: Republicans eyeing short-term debt-limit increase, Ryan says.

�Ryan�s suggestion of a temporary extension should be regarded as a positive sign,� said Kelly at J.P. Morgan.