NEW YORK - Stocks tacked on modest gains yesterday to extend a rally to a fourth day after a strong rise in pending home sales, the latest encouraging signal for the housing market.

But a slump in financial shares kept overall buying in check as several big banks said they would sell more stock to repay federal bailout money.

The modest moves followed huge gains Monday, when indicators jumped more than 2 percent on positive signs for manufacturing and other good economic signals.

William Rutherford, president of Rutherford Investment Management L.L.C., of Portland, Ore., worries that even with promising economic data, the three-month rally in stocks might be overdone.

"The economy has to recover nicely to justify the recent run-up, and I don't know whether it's got that much momentum in it," he said.

The Dow rose 19.43, or 0.22 percent, to 8,740.87. The Standard & Poor's 500 index rose 1.87, or 0.20 percent, to 944.74, and the Nasdaq composite index rose 8.12, or 0.44 percent, to 1,836.80.

Financial stocks mostly lost ground as several banks said they would sell shares to raise capital. Adding to their share base can dilute the value of existing shares.

Morgan Stanley said it would raise $2.2 billion in a stock offering, after JPMorgan Chase & Co. and American Express Co. announced similar plans late Monday. JPMorgan will offer $5 billion of common stock, while American Express is seeking to raise $500 million.

Morgan Stanley rose 20 cents to close at $30.09, while JPMorgan fell $1.61, or 4.46 percent, to $34.50. American Express slid $1.28, or 4.92 percent, to $24.71.

Meanwhile, Goldman Sachs Group Inc. has sold part of its stake in Industrial & Commercial Bank of China Ltd. to raise more than $1.9 billion to help repay bailout money. Goldman fell $1.20 to close at $143.13.

"We've seen a drumbeat of new issuance in the banking sector. So far, the market has been able to absorb the supply pretty well. It's going to be yet another test," said Craig Peckham, an analyst at Jefferies & Co. Inc.

Investors drew some confidence from slight improvements in auto-sales reports for May after the bankruptcy filings of Chrysler L.L.C. and General Motors Corp. Ford Motor Co. rose 28 cents, or 4.57 percent, to $6.41. GM shares no longer trade on the New York Stock Exchange, and Chrysler is not public.

The report on pending home sales lifted home builder stocks. Beazer Homes USA Inc. rose 24 cents, or 9.13 percent, to $2.87, while Toll Bros. Inc., of Horsham, Pa., rose 73 cents, or 3.88 percent, to $19.53.

The Russell 2000 index of smaller companies rose 5.30, or 1.02 percent, to 526.63.

The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell 3 cents to settle at $68.55 on the New York Mercantile Exchange after finishing Monday at its highest level of the year.