U.S. Vice President Joe Biden and Defense Secretary Robert Gates helped usher in the next chapter for the United States in Iraq on Wednesday, presiding over a ceremony launching a new military operation designed to train, assist and advise the Iraqis.

Stocks rallied Wednesday, after surprisingly strong data on U.S. and Chinese manufacturing activity overshadowed a weaker-than-expected employment report.

The Dow Jones industrial average (INDU) surged 241 points, or 2.4%, about 1-1/2 hours into the session. The S&P 500 (SPX) soared 29 points, or 2.7%. The Nasdaq (COMP) composite rallied 61 points, or 2.9%.

Stocks opened sharply higher, following a report that showed a rebound in China manufacturing. In addition, stronger-than-expected economic growth in Australia helped fuel optimism about the global economy.

But the rally really gained momentum after the Institute for Supply Management's (ISM) said its index of manufacturing activity rose to 56.3 in August. Economists were expecting the index to fall slightly from July's number of 55.5. Any number above 50 indicates growth in the sector.

Meanwhile, investors largely shrugged off a dour report from payroll processing firm ADP -- which is widely used as a leading indicator for Friday's job report from the Labor Department.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, said there has been a "bull market on negative sentiment," and that the ISM report "shocked" investors into reconsidering the bleak outlook many have for economic growth this year. However, the weak job market remains a concern he said, since consumer spending drives the bulk of the nation's economic activity -- not manufacturing.

"This market is looking for something to grab on to," he said. "And for the moment it's manufacturing."

Wednesday's advance came after stocks ended the previous session relatively unchanged, closing out a lackluster August. Stocks typically start September strong, but often end on a weak note due to end-of-the-quarter movements by mutual funds.

Economy: Payroll processing firm ADP reported that employers cut 10,000 jobs in August. Economists were expecting private sector employers to add 13,000 jobs during the month, after adding 37,000 in July.

Separately, planned job cuts plummeted to a 10-year low in August, as employers shed 34,768, down 17% from the previous month, according to outplacement firm Challenger, Gray & Christmas.

The reports come two days before the government's monthly report on jobs and unemployment. Economist expect the government to report that the economy lost 120,000 jobs in August, after employers cut payrolls by 131,000 in July. The unemployment rate is expected to edge up to 9.6% from 9.5%.

Other reports on Wednesday included construction spending, which fell 1% in July, versus a forecasted 0.7% decline.

Companies: General Motors said auto sales in August declined 25%, weaker than expected. Other automakers are due to report sales figures throughout the day, including Ford (F, Fortune 500), Toyota (TM) and Chrysler.

Shares of Burger King Holdings (BKC) jumped 14%, following a report that the fast food chain is considering a possible sale to buyout firms. The Wall Street Journal reported that that private equity firms that have expressed interest in buying Burger King include Britain's 3i Group.

Apple's (AAPL, Fortune 500) stock was up 2.3% as investors geared up for the company's annual music-themed special event. CEO Steve Jobs is expected to unveil its newest iPods and advances in the iTunes music store.

Shares of BP (BP) climbed 3.8% as the oil giant said it has agreed to sell its interests in ethylene and polyethylene production in Malaysia to government-owned Petronas for $363 million in cash.

World markets: European shares rose in afternoon trading. The FTSE 100 in Britain jumped 1.3%, the CAC 40 in France added 3% and the DAX in Germany gained 2%.

In Asia, Japan's benchmark Nikkei index gained nearly 1.2%, rebounding after hitting a 16-month low on Tuesday, and the Hang Seng in Hong Kong rose 0.4%. the Shanghai Composite fell 0.6%, despite a report that showed China's manufacturing sector bounced back in August after several months of slowing.

Currencies and commodities: The dollar fell against the euro and the British pound, but rose versus the Japanese yen.

Currency trading volume around the world has hit $4 trillion a day, a 20% jump compared to 2007, said the Bank of International Settlement.

Oil futures for October delivery rose $2.17 to $74.09 a barrel. Gold for December delivery fell $1.30 to $1,249.

Visitors and some residents evacuated from low-lying vacation islands off the North Carolina coast on Wednesday as Hurricane Earl bore down on the U.S. eastern seaboard, churning up dangerous swells.

Earl, still a major Category 3 hurricane, weakened slightly overnight as it barreled across the Atlantic east of the Bahamas. It was on track to approach North Carolina's coast by early on Friday, the U.S. National Hurricane Center (NHC) said.

The second major hurricane of the 2010 Atlantic season was packing top sustained winds of 125 mph, with hurricane force winds extending outward up to 90 miles, and tropical storm force winds extending out up to 200 miles.

While a direct U.S. landfall was not forecast, Earl's swirling winds were expected to sideswipe the densely populated U.S. coast from North Carolina to New England on a forecast northward offshore path during the upcoming U.S. Labor Day holiday weekend marking the end of the summer vacation season.

Earl could bring driving rain, high winds and pounding surf to the U.S. East Coast through Friday and Saturday. NHC spokesman Dennis Feltgen said no storm had threatened such a broad swath of the U.S. shoreline since Hurricane Bob in 1991.

NHC forecasters said a low pressure trough moving eastward off the United States was expected to start turning the hurricane on Thursday, shifting it to the northeast, which should keep it offshore of the U.S. East Coast.

Forecaster Wallace Hogsett said the center of Earl was expected to pass within 100 miles or less of North Carolina's coastal Outer Banks late on Thursday or early on Friday.

"We're forecasting it still to be a major hurricane at that time so this is still a serious situation," he said.

OIL REFINERS ON ALERT

U.S. and Canadian East Coast oil refiners said they were monitoring Earl but that it was too early to begin to take any precautionary measures.

Hurricane Earl posed no threat to major U.S. oil and gas installations in the Gulf of Mexico.

At 8 a.m. EST, Earl was moving across the Atlantic well to the east of the Bahamas and was located about 780 miles south southeast of Cape Hatteras, North Carolina, the Miami-based National Hurricane Center said.

"Large swells from Earl should affect the Bahamas and the southeastern coast of the United States today (Wednesday). These swells will likely cause dangerous surf conditions and rip currents," the center said.

North Carolina's Dare County ordered the mandatory evacuation of all visitors in Hatteras Island, a popular picturesque vacation spot that draws large numbers of tourists each year. Officials said high waves striking the island could wash over the costal highway, impeding safe travel.

Vacationers and residents were also being evacuated from Ocracoke Island, also on North Carolina's Outer Banks that jut into the Atlantic Ocean.

On Hatteras Island, visitor John Gusciora of Leesburg, Virginia, was reluctant to leave. He had been renting a cottage with three families in the village of Salvo and the weather was sunny on Wednesday, with little to no breeze.

"It's disappointing. We've been coming down here for years and this is the best weather we've had until today. Now we have to try to pack up our bags and beat the rush off the island," Gusciora said.

"I understand North Carolina washes over really easy. It's sad to go, but it's better to be safe," he added.

A hurricane watch was in effect for most of the North Carolina coast, alerting residents that hurricane conditions -- sustained winds of 74 mph -- were possible within 48 hours.

It was too early to predict how close the hurricane would come to New York when it churned offshore east of the city over the weekend, but emergency officials were recommending that local authorities and residents remain alert.

TROPICAL STORM FIONA

Behind Earl, Tropical Storm Fiona, located about 145 miles east of the northern Leeward Islands, strengthened on Wednesday, with winds up to 60 mph as it moved west-northwest, the NHC said.

Fiona was also expected to trek north to northwest in the Atlantic, but steer further east than Earl from the U.S. Atlantic seaboard, and remain a tropical storm at its peak intensity.

Meanwhile, a broad area of low pressure about 800 miles west-southwest of the Cape Verde Islands in the eastern Atlantic increased in organization overnight and now had an 80 percent chance of becoming a tropical depression in the next 48 hours.

Early computer models showed that system moving mostly west in the Atlantic on a track that would put it between Barbados and the British Virgin Islands.

On Monday, Earl battered the northeastern Caribbean islands and Puerto Rico, downing power lines, blowing off roofs, toppling trees and causing some flooding.

Auto sales, once a bright spot in the economic recovery, stalled last month as the nation's largest car companies reported falling sales.

General Motors Co.'s August sales fell 7 from July, and an even sharper 25 percent from August of 2009, when sales were boosted by the government's Cash for Clunkers rebates. Ford saw sales slip 5 percent from July. Subaru, whose strong lineup of smaller cars benefited from clunkers last year, also suffered.

Buyers who are nervous about the economy's health stayed away from showrooms, a worrisome sign since August is typically a strong month. Analysts say total industry sales could fall below 1 million new vehicles, making it the worst August in 27 years. All automakers report sales figures on Wednesday.

"There hasn't been enough horsepower behind the recovery to motivate consumers to regain their confidence and purchase vehicles at a higher rate," says Jeff Schuster, executive director of global forecasting for J.D. Power and Associates.

Also, potential buyers are having a harder time getting big discounts.

Automakers have been reluctant to increase incentives such as rebates and low-interest financing. Most car companies are making money at lower sales levels because they've cut production. They no longer need to offer cars at below break-even prices just to move them off lots.

"We know it's going to be a modest recovery, it's going to be bumpy," said Don Johnson, GM's vice president of U.S. sales. "What we don't want to do is get back to putting incentives on the vehicles to keep the plants running."

GM's four remaining brands-- Chevrolet, Buick, GMC and Cadillac -- dropped 11 percent versus August of last year. While Buick, GMC and Cadillac reported increases, Chevrolet, the company's largest brand, slipped because of the tough comparison with August of last year. That's when buyers snapped up many of Chevy's small cars under the clunkers program.

The clunkers comparison also hurt small-car specialists like Subaru, where sales fell 22 percent in August. Subaru was unable to match big sales last year of its smaller Impreza and the Legacy models. Sales fell 7.2 percent from July.

Small cars sold well last August because of the $2.8 billion clunkers program, which ran from July 27 to Aug. 25. It gave government rebates to people who bought new vehicles with better gas mileage than their old vehicles. Buyers got either $3,500 or $4,500, depending on how much the mileage was increasing. All trade-ins had to get 18 mpg or less. Nearly 700,000 new vehicles were bought under clunkers.

At GM, Buick sales rose 66 percent over August of last year, while Cadillac sales jumped 83 percent, led by the new SRX crossover. Chevrolet, though, dropped 22 percent, mainly because it sold about 20,000 Cobalt and Aveo small cars under the clunkers program. GM said Buick is the fastest-growing brand in the industry. Its increase was driven by the LaCrosse midsize luxury car, which saw sales almost double.

GM's sales are up 5 percent so far this year as it prepares for an initial public offering of its stock, which could happen as early as October. Wednesday was also Daniel Akerson's first day as GM's new CEO, taking over from Ed Whitacre.