The stock market broke a two-day losing streak Wednesday, posting solid gains as investors piled into banks and energy companies.
Stocks jumped from the start on a rise in the price of crude oil, with banks joining the rally after a strong report on the service sector suggested the Federal Reserve may raise interest rates soon. Banks can benefit when rates rise because it enables them to charge more for their loans. Bank of America rose 2%.
The yield on government bonds rose again, and investors dumped shares of phone and real estate companies, sending them down nearly 2%. Investors find those companies less attractive as a source of income relative to bonds when bond yields are rising.
The Dow Jones industrial average climbed 112.58 points, or 0.6%, to 18,281.03. The Standard & Poor's 500 index went up 9.24 points, or 0.4%, to 2,159.73. The Nasdaq composite rose 26.36 points, or 0.5%, to 5,316.02.
The price of U.S. benchmark crude closed near $50 a barrel, its highest price since late June, after a U.S. government report said energy stockpiles shrank last week, a surprise to most analysts. Chesapeake Energy rose 6.8% to $6.80, the biggest gain in the S&P 500.
Investors have been pushing crude sharply higher since OPEC announced a preliminary deal last week that would limit production, and the price is now nearly double its February low of $26.
A private report showed that U.S. service companies grew last month at the fastest pace in nearly a year. The Institute for Supply Management said that its services index jumped to 57.1 in September, the highest point since October last year. It was the latest in a string of indicators that the economy is gaining strength.
Investors took that as a sign that the Federal Reserve is more likely to raise rates from super-low levels this year, and pushed yields on government bonds higher. The yield on the 10-year Treasury note rose to 1.71% from 1.69%, and is now up about a tenth of a percentage point since the start of the week, a big move.
Investors had been buying high-dividend stocks such as utilities and phone and real estate companies as an alternative source of income to bonds, but they are having second thoughts as yields rise.
"Interest rates have been incredibly low, maybe artificially low, and everyone was chasing something with income, and they were blindly chasing them," said Eric Ervin, chief executive of investment firm Reality Shares. The rush out of the former high flyers, he added, is a "sign of normality."
Among stocks making big moves, Constellation Brands rose 1.7% to $168.60 after it reported strong sales of beers such as Corona and Modelo in its latest quarter. It raised its projections for sales growth for its beer business.
Consulting firm Booz Allen Hamilton fell 3.8% to $30.31. Federal prosecutors said a contractor for the National Security Agency had been arrested on charges that he illegally removed highly classified information, and the New York Times reported that the contractor worked for Booz Allen. The firm said it had fired an employee who had been arrested by the FBI.
Ascena Retail Group jumped 4.8% to $5.87 after the owner of Lane Bryant and Ann Taylor said it will restructure its business and cut costs.
In Europe, the major indexes fell. Britain's FTSE 100 sank 0.6% and France's CAC 40 and Germany's DAX both dropped 0.3%.
The euro rose to $1.1217 from $1.1197. The dollar rose to 103.63 yen from 102.81 yen.
Precious and industrial metals futures closed lower. Gold fell $1.10 to $1,268.60 an ounce, silver fell 8 cents to $17.70 an ounce and copper was little changed at $2.16 a pound.
The price of U.S. benchmark crude rose $1.14, or 2.3%, to $49.83 a barrel. Brent crude, the international standard, rose 99 cents, or 1.9%, to $51.86 a barrel.
In other energy trading, wholesale gasoline slipped 1 cent to $1.49 a gallon, heating oil rose 3 cents to $1.58 a gallon and natural gas rose 8 cents to $3.041 per 1,000 cubic feet.
3 p.m.: This article was updated with additional details.
1:30 p.m.: This article was updated with the close of markets.
8 a.m.: This article was updated with more recent market information and additional details.