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Dow ends up sharply after late-session rally

Wall Street spent another session buffeted by volatility, this time closing mixed after investors wrestled with their fears about the economy but also looked for bargains.
/ Source: The Associated Press

Wall Street spent another session buffeted by volatility Thursday, this time closing mixed after investors wrestled with their fears about the economy but also looked for bargains after two days of selling. While the Dow Jones industrials and Standard & Poor’s 500 index rose sharply, a downdraft in tech stocks left the Nasdaq composite index with a loss.

Buying came in spurts and then tended to quickly evaporate as investors fretted that the economy is either in a recession or headed for one. Investors tended to gravitate toward big-name stocks seen as safer bets after a two-day selloff that sliced nearly 750 points from the Dow.

“I think that people feel that it’s got to stop sliding someplace and they’re looking basically for bargains,” said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. “The analogy I’m using right now is that you can buy a BMW at Toyota prices. But there is still concern that better bargains can be had.”

With its gyrations, Wall Street is living up to predictions that trading will remain volatile as investors try to test whether the market has formed a bottom.

Manny Weintraub, president of Integre Advisors in New York, said several of the market’s attempts to rally have been short-circuited by sellers who had awaiting an opportunity to cash out and that some investors looking to snap up inexpensive stocks are worried about getting burned by further declines.

“A lot of bargain hunters came in last week and now that money has been spent and they can’t hunt twice,” he said.

Wall Street’s jitters came as investors tried to extract clues about where the economy is headed from a mix of corporate news.

Goldman Sachs Group Inc. is preparing to cut about 10 percent of its work force, according to a person briefed on the plan who requested anonymity because the company hadn’t publicly disclosed details of the plan. Dow Chemical Co. said its quarterly profit rose 6 percent, helped by price hikes that offset a nearly 50 percent increase in raw materials and energy costs.

Meanwhile, Amazon.com Inc. lowered its revenue guidance for the year amid a weakening economy; the news helped pummel tech and small-cap stocks.

Weintraub said Amazon’s forecast is the latest disappointment from the technology sector, following lackluster reports from eBay Inc. and Texas Instruments Inc. Some investors had hoped, apparently in vain, that the sector would sidestep some of the troubles hitting financial companies and other parts of the economy.

“As we go through earning season earnings are basically not great,” Weintraub said.

A snapshot of the labor market signaled highlighted one of investors’ worries about the fragility of the economy. The Labor Department reported Thursday that new applications for unemployment benefits rose 15,000 last week to a seasonally adjusted 478,000. That was slightly above analysts’ estimates of 470,000. Jobless claims above 400,000 are considered a sign of recession.

Investors viewed the data as more evidence that the financial crisis is battering the economy and forcing companies to cut back.

Thomas J. Lee, U.S. equities strategist at JPMorgan Chase & Co. in New York, cautioned that Wall Street will need to rein in its sharp swings before some investors will feel confident enough to return.

“I don’t think anyone can buy and sell stocks right now with conviction,” he said.

The Dow rose 172.04, or 2.02 percent, to 8,691.25, after rising 277 points and falling by 276 points during the session. On Wednesday, the Dow lost 514 points as investors worried that the global economy is poised to weaken. That was on top of a 231-point loss Tuesday.

Broader stock indicators were mixed Thursday. The Standard & Poor’s 500 index rose 11.33, or 1.26 percent, to 908.11, and the Nasdaq fell 11.84, or 0.73 percent, to 1,603.91.

The Russell 2000 index of smaller companies fell 12.05, or 2.40 percent, to 489.92.

While the major indexes were mixed, declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange, where volume came to 1.7 billion shares.

“You’re not getting the volume associated with a normal triple-digit move in the Dow,” Fullman said. “We should be at 2 billion shares.”

He said the volume levels indicate that many investors aren’t willing to step into the market.

The credit markets again showed signs of thawing after locking up when Lehman Brothers Holdings Inc. declared bankruptcy in mid-September.

An auction of $988 million in debt from failed bank Washington Mutual Inc. fetched a substantially higher price than was seen for a similar auction of Lehman Brothers debt earlier in the month. The sale priced $988 million of WaMu debt at 57 cents for every $1 of debt sold compared with the 8.625 cents on the dollar that a $4.92 billion sale of Lehman debt garnered.

Besides indicating greater confidence in WaMu’s debt, the auction also indicated that some investors are becoming more willing to wade into risky debt following a range of coordinated moves by governments around the world to build confidence in the credit markets.

But the improvement in credit markets, which is expected to help revive lending to businesses and consumers, will take time. A key bank-to-bank lending measure has show significant improvement. The rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — was unchanged at 3.54 percent. The rate fell to that level on Wednesday and is the lowest since Sept. 24.

While demand for short-term Treasury bills rose, yields are well above where they were last week. The three-month bill, regarded as the safest assets around, yielded 0.97 percent, down from 1.01 percent late Wednesday. Last week the yield was at 0.20 percent, indicating investors were willing to trade the slimmest of returns for a safe place to keep their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.63 percent from 3.60 percent late Wednesday.

The dollar was mixed against other currencies after jumping to multiyear highs Wednesday, while gold prices fell.

Light, sweet crude rose $1.09 to settle at $67.84 on the New York Mercantile Exchange. The contract fell to a 16-month low on Wednesday as an increase in U.S. crude and gasoline stocks fed beliefs that weakness in the economy is eroding demand for energy.

Among individual stocks, Amazon.com rose 33 cents at $50.32 after trading as low as $43.31.

Goldman Sachs fell $6.13, or 5.3 percent, to $108.58, while Dow Chemical rose $3.23, or 10.5 percent, to $24.43.

Blue chips in the Dow that drew buyers included Boeing Co., up $3.61, or 8.4 percent, at $46.52, and 3M Co., which rose $3.35, or 5.8 percent, to $61.54.

Overseas, Japan’s Nikkei stock average fell 2.46 percent. Britain’s FTSE 100 rose 1.16 percent, Germany’s DAX index fell 1.12 percent, and France’s CAC-40 rose 0.38 percent.