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STOCKS ADVANCE IN 1 P.M. TRADING

Stocks moved sharply higher today, with blue chips regaining momentum as investors eyed three fresh reports on the economy and news of an agreement between AOL Time Warner and Microsoft.

At 1 p.m., the Dow Jones industrial average was up 135.12 at 8,846.30. That reversed a decline in the Dow Thursday, when it lost nearly 82 points, halting a five-day rally.

The broader market was also higher. The Nasdaq composite index rose 17.49 to 1,592.44 and the Standard & Poor's 500 index gained 12.57 to 962.21.

Analysts attributed the market's rise to economic reports that helped bolster growing confidence by investors.

The Commerce Department reported today that consumer spending dipped by 0.1 percent in April. That is the largest reduction since the start of the year and is a sharp reversal from March when consumers increased their spending by 0.8 percent. Economists had forecast a rise of 0.1 percent for April.

Also today, the government reported that the incomes of Americans were unchanged in April after a gain of 0.4 percent in the previous month, a sign of the weak job market.

In a third piece of economic news, the University of Michigan's consumer sentiment index rose in May to 92.1 percent, according to Dow Jones. That is up from 86.0 percent in April, but is lower than both a mid-month reading and the forecasts of analysts.

On Wall Street, the uncertain economic news was countered by an announcement from Microsoft Corp. that it would pay AOL Time Warner $750 million to settle an antitrust lawsuit over the software giant's conduct in making its Internet Explorer the dominant Web browser.

The pact, announced late Thursday, gives AOL-Time Warner free license to Microsoft browsing software for seven years. Microsoft also would license its digital media technology to AOL, as well as work with the company to promote digital media initiatives.

AOL rose 38 cents to $15.23 in trading on the New York Stock Exchange.

Microsoft rose 30 cents to $24.70 in trading on Nasdaq.

Home Depot gained 59 cents to $32.15, after announcing the buyback and plans to spend $4 billion on new stores, renovations and other programs. It has a market value of $72.4 billion.

Boeing Co., the world's biggest plane-maker, gained 41 cents to $30.36. Boeing and Northrop Grumman Corp. will share as much as $2 billion to design and build the Navy's next radar-jamming aircraft, Navy and industry officials said.

Shares of Northrop, the largest military shipbuilder, rose 60 cents to $87.16.

Nvidia Corp., whose chips help run Microsoft's video-game console, rose $2.05 to $26.26. Other early gainers included Imclone Systems, which rose $3.99 to $27.45, a gain of 17 percent after news reports that data soon to be reported shows the company's drug Erbitux is an effective cancer treatment.

Halliburton rose 31 cents to $23.46 after the company said today it had agreed to settle shareholder lawsuits alleging the company employed accounting trickery to inflate its revenues. The company said the settlement would not have a material impact on its earnings.

Bank One rose 30 cents to $37.19 after announcing it has agreed to buy a U.S. life insurance business from Zurich Financial Services AG.

The Russell 2000 index, which tracks smaller company stocks, rose 5.77, or 1.3 percent, to 438.41.

Overseas, Japan's Nikkei stock average rose 0.6 percent. In afternoon trading, Germany's DAX index was up 2.8 percent, Britain's FTSE 100 was up 0.2 percent, and France's CAC-40 was up 1.3 percent.

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