NEW YORK The stock market began August with a huge rally after economic and earnings reports from around the world revived investors’ faith in the global recovery.

The Dow Jones industrial average rose more than 200 points Monday. All the major stock indexes rose about 2 percent.

The market shot higher at the opening on upbeat economic news from China and a report of manufacturing growth in Europe. Strong earnings results at European banks added to the gains, and, shortly after trading began, investors got a surprisingly good reading on U.S. manufacturing.

The Institute for Supply Management’s index of manufacturing activity during July was better than the market expected, coming in at 55.5 although it fell from June’s 56.2. Traders were pleased because the report still showed that manufacturing is growing.

Investors were encouraged in particular by several key components of the index. Production and new orders both improved, as did companies’ willingness to hire new employees.

“Every component in ISM was greater than 50,” said Cort Gwon, director of trading strategies and research at FBN Securities. “To have all of them up is a good sign.”

Stock trading has been erratic for months because of signs the recovery was weakening. 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. And 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.

And some analysts were cautious as they watched stocks jump.

“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.”

Stocks were up across the market. Financials got a lift from the strong European bank earnings and industrial and materials stocks, including 3M Co. and General Electric Co., rose after the ISM report. Energy stocks rose as the price of oil advanced on expectations that a healthier world economy would raise demand for fuel.

In late trading, the Dow Jones industrial average rose 213.58, or 2 percent, to 10,679.52. The Standard & Poor’s 500 index rose 24.57, or 2.2 percent, to 1,126.17, while the Nasdaq composite index rose 42.43, or 1.9 percent, to 2,297.13.

About five stocks rose for every one that fell on the New York Stock Exchange where volume came to a light 683 million shares.

Whether investors can hold on to their optimism will turn on the government’s July employment report, which is being released on Friday. Volume was also light Monday as many investors, following the strategy they used during July, decided to stay out of the market until they feel more confident that its gains will hold.

“The public is more cautious,” said Bruce McCain, chief investment strategist at Key Private Bank. “It’s more of a wait and see mode.”

McCain said it would take a string of economic reports that consistently beat expectations to bring more investors back into the market. That makes this week especially important with plenty of reports, including Friday’s jobs data and ISM’s service sector report, due out later this week.

With stocks rising sharply, bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.96 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.

Britain’s FTSE 100 gained 2.7 percent, Germany’s DAX index rose 2.3 percent, and France’s CAC-40 rose 3 percent. Japan’s Nikkei stock average rose 0.4 percent and Hong Kong’s Hang Seng jumped 1.8 percent.

Investors largely dismissed renewed caution from Federal Reserve chairman Ben Bernanke. During a speech Bernanke said the economy still has a long way to go to recover. Bernanke’s comments before Congress a couple of weeks ago, calling the economy “unusally uncertain,” led to a sell-off in stocks.

Monday began with news out of China, where manufacturing data showed that the company’s industrial growth was moderate enough that government isn’t likely to take steps to slow the country’s economy. Investors have periodically sold stocks on concerns that China’s economy would slow and pull other economies down with it.

Meanwhile, a manufacturing report for the 16 countries that use the euro was revised higher for July and showed that the continent’s economy continues to recover faster than expected. The stock market’s spring plunge was triggered by concerns that rising government debt in Europe would stagnate the region’s economy and in turn affect other countries including the U.S.

Stocks also rose on strong earnings reports from banking giants HSBC and BNP Paribas, which reassured investors that the continent’s financial sector is not being hurt by the debt problems.

HSBC shares trading in the U.S. rose $2.72, or 5.3 percent, to $53.80. Bank of American rose 42 cents, or 3 percent, to $14.46.

3M rose $1.99, or 2.3 percent, to $87.53, while GE rose 31 cents to $16.43.

Oil prices jumped on signs of manufacturing growth. That, in turn, drove stocks of energy companies higher. ExxonMobil Corp. rose $2.29, or 3.8 percent, to $61.97, while Chevron Corp. jumped $1.67, or 2.2 percent, to $77.88. Benchmark crude rose $2.53 $81.48 a barrel on the New York Mercantile Exchange.

(TM and Copyright 2010 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2010 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

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