Stocks rally on housing report

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NEW YORK (CNNMoney)

The Dow Jones industrial average, the S&P 500 and the Nasdaq all gained about 0.5% in early trading.

After suffering heavy losses in the past few days, investors were encourage to dip back into stocks after a string of upbeat economic reports Thursday.

The S&P/Case-Shiller home price index was up 12.1% in April compared to a year ago for the 20 top real estate markets across the nation. It was the biggest annual jump in prices in seven years and the 2.5% jump from March was the biggest one-month rise in the 12-year history of the index.

In more good news for housing, homebuilder Lennar Corp. (LEN) reported sales and earnings that topped forecasts. CEO Stuart Miller said Lennar's results "point to a solid housing recovery." New orders rose 27% in the quarter. Lennar shares were up nearly 4% on the news, while rival homebuilders PulteGroup (PHA), Toll Brothers (TOL) and DR Horton (DHI) were also higher.

A report on durable goods came in better than expected. The Census Bureau said new orders for big-ticket items rose 3.6% in May. Economists had forecast a 3% rise, according to Briefing.com.

New home sales also topped estimates, rising 2% in May to a seasonally adjusted rate of 476,000 units, the Commerce Department said.

Meanwhile, a measure of consumer confidence rose to the highest level since January 2008. The Conference Board's index of consumer confidence for June hit 81.4, up from 74.3 in May. Consumers have been encouraged by improvement in the job market, the business research group said.

The markets are coming off a sell-off Monday, driven by continued uncertainty about China and when the Federal Reserve will ease its stimulus. The double whammy of uncertainty has caused volatility to spike.

So far this month, the CBOE Market Volatility Index (VIX) has risen 25%. And CNNMoney's Fear & Greed Index is deep in extreme fear.

The markets have been taking their cue this week from China, where stocks have tumbled on concerns about tighter credit conditions.

Related: China: Don't worry! It's not 2008

But comments attributed to a People's Bank of China official helped ease some jitters. The official reportedly said the bank will keep interest rates in check, and that seasonal forces that have driven them higher recently will fade.

Following his comments, the Shanghai Composite, which was down as much as 5.6%, recovered to close just 0.2% lower.

Related: Stock sell-off is 'taper tantrum'

Still, the ups and downs have analysts worried.

"Volatility is very pronounced," Carter Worth, chief market technician at Oppenheimer, told CNNMoney in an interview. Earlier he sent around an amusing note that simply said "We have no new thoughts. Sell."

"If this kind of volatility is taking place, there is a change in the wind. That doesn't mean we are going to see a bear market or a crash, but upside is limited and downside is unknown, but very real," he told CNNMoney.

Related: Bonds in the bargain bin

On the corporate front, shares of Walgreen (WAG, Fortune 500) sank more than 6% after the drugstore chain missed earnings and revenue forecasts.

Barnes & Noble (BKS, Fortune 500) shares plunged after the bookseller said it will stop making the NOOK in-house and will partner with a third party to manufacture the eReading device. Sales in the NOOK segment fell 34% in the quarter to $108 million.

Carnival (CCL) said earnings fell 55% to 9 cents per share in the second quarter. The beleaguered cruise ship operator warned in May that earnings would suffer this year due to price cuts following the Carnival Triumph mishap. But Carnival's stock rose since earnings were better than expected.

Gunmaker Smith & Wesson (SWHC) will release fourth-quarter results after the market closes.

European markets were making significant gains in morning trading after taking a big fall Monday. Germany's DAX index took the lead, rising by just over 1.5%.

Asian markets ended with mixed results after a volatile day. Hong Kong's Hang Seng dropped in early trading, but wound up closing with a 0.2% gain. Japan's Nikkei ended with a 0.7% loss.

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