Stocks rise as home construction rebounds

Updated at 4:40 p.m. ET

Stocks rose Tuesday following reports that showed home construction rebounded sharply in July and inflation remained subdued.

Corporate news also cheered up investors. Aeropostale, a teen-clothing company, surged after reinstating its former CEO. Home Depot climbed after raising its annual profit guidance following a strong spring selling season.

The Dow Jones industrial average climbed 81 points, or 0.4 percent, to close at 16,920. The Standard & Poor's 500 index rose 10 points, or 0.5 percent, to 1,982. The Nasdaq composite finished at 4,528, up 20 points.

The Commerce Department reported Tuesday that housing starts jumped 15.7 percent in July to an annual pace over more than one million homes -- exceeding expectations and the fastest pace in eight months. Groundbreaking on new homes had been disappointing the past two months. On Monday, a survey showed sentiment among U.S. home builders improved in August for a third month. Mizuho Bank analysts said in a note to clients that housing is "experiencing a broad-based revival."

Home Depot jumped $3.37, or 4.1 percent, in earlier trade to $86.98 after the company said its second-quarter net income surged 14 percent. Spring is the biggest season for home-improvement retailers, as homeowners and others work on their yards and gardens. Home Depot has also been helped by an improving housing market.

Aeropostale jumped 37 cents, or 11.7 percent, to $3.61. The company is bringing back its former CEO after struggling with sliding sales. The New York company said Monday that Julian Geiger is taking over effective immediately. Thomas Johnson is leaving the board of directors as well as relinquishing the CEO title.

Inflation remains subdued. U.S. consumer prices rose in July at the slowest pace in five months, held back by a drop in gasoline prices. Consumer prices edged up a seasonally adjusted 0.1 percent last month, after larger gains of 0.3 percent in June and 0.4 percent in May. If inflation remains constrained, investors judge that the Federal Reserve will be able keep its key interest rate low for longer.

Benchmark U.S. crude fell 25 cents to $93.50 in New York. Bond prices rose. The yield on the 10-year Treasury note fell to 2.38 percent, from 2.40 percent Monday.