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Tuesday, October 5, 2010 - 1:52pm

Stock Prices Soar To Five-Month High

Stock prices surged to their highest level in five months Tuesday following better-than-expected news about the service sector.

The Institute for Supply Management said the nation's service sector grew for the ninth straight month, rising to 53.2 last month from 51.5 in August. Economists had expected a reading of 52. Service employers -- hospitals, banks, restaurants, airlines, consultants -- create about 80 percent of U.S. jobs.

With more growth likely, economist and investment adviser Hugh Johnson said the market is reacting. "It's responding in a somewhat rational way to news which has been, quite frankly, getting better and better," he said.

Johnson said he doesn't think stocks are getting ahead of themselves, even though the economic growth is slow. "The stock market probably has some room to get even better on the upside," he said.

According to preliminary calculations, the Dow Jones industrial average rose 193 points Tuesday, or 1.8 percent, to close at 10,944, its highest level since mid-May. Individual blue chip stocks like Bank of America and DuPont fared much better.

The S&P 500 index rose 24, or 2.1 percent, to 1,161, and the Nasdaq rose 55, or 2.4 percent, to 2,400.

About five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.2 billion shares.

Investors were encouraged by the Bank of Japan's decision to cut interest rates, a move meant to encourage lending.

At the same time the head of the Chicago Federal Reserve said the Fed should do much more to spur growth. Economists took that as a sign that the Fed is about to pursue more quantitative easing, a way of pumping more money into the economy by buying up government securities.

NPR's Paul Brown and Jim Zarroli contributed to this report, which contains material from The Associated Press [Copyright 2010 National Public Radio]