updated 7/16/2010 7:41:01 AM ET 2010-07-16T11:41:01

Investors gave the stock market a big last-hour turnaround on just the anticipation of Goldman Sachs settling the government's civil fraud charges.

As word spread that the Securities and Exchange Commission had scheduled a late-afternoon announcement, investors began buying on the belief that the government and Goldman Sachs Group Inc. had settled the charges that grew out of the sale of securities based on risky mortgages.

The $550 million settlement was announced less than an hour after trading ended. Goldman agreed to pay fines of $300 million, the largest fine against a financial company in SEC history, and $250 million to compensate investors who lost money on the securities. The deal also requires Goldman to review how it sells complex financial mortgage investments.

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The settlement lifts uncertainty that has hovered around Goldman since the charges were announced April 16. Expectations of a deal were enough to make traders temporarily set aside concerns about the economy. A series of disappointing economic reports had sent the Dow Jones industrial average down nearly 100 points in late trading. The Dow scrambled back to a loss of just 7 by the close. Broader indexes were narrowly mixed.

Goldman was trading at about $140 a share when word of the pending announcement came. The stock then soared to close at $145.22, up $6.16, and shot up to $153.45 in after-hours trading.

The company's stock has been pounded by the SEC case. It closed at $183.81 on April 15, the day before the charges, and plunged 12.6 percent the day they were announced. By the time it reached its closing low of $131.08 on July 2, the stock had fallen nearly 29 percent.

Investors viewed Goldman's settlement as a buying opportunity for a stock that has been hammered since the SEC filed charges.

"The SEC case is now behind Goldman as far as investors are concerned," said independent market analyst Edward Yardeni said, adding that the manageable size of the settlement added to the demand for the company's shares.

"This fine is a bargain for Goldman," Yardeni said.

Goldman's problems have been a pall on other financial companies and in turn, the overall market. So stocks overall benefited Thursday from news of a deal.

A little more uncertainty was lifted from the market late in the day, when the Senate passed and sent to President Barack Obama the financial regulation bill. However, because regulations that will implement the bill's provisions have yet to be written, traders were still wary. Analysts said that likely contributed to the market's dip right before word of an SEC announcement.

Major Market Indices

Bill Strazzullo, partner and chief market strategist for Bell Curve Trading in Boston, noted that JPMorgan Chase & Co. CEO Jamie Dimon earlier in the day said it wasn't possible to estimate the impact of the bill on his company's profits.

"Maybe the reality of it is finally upon us," Strazzullo said.

The Dow fell 7.41, or 0.07 percent, to 10,359.31. The Standard & Poor's 500 index rose 1.31, or 0.1 percent, to 1,096.48, while the Nasdaq composite index fell 0.76, or 0.03 percent, to 2,249.08.

Losing stocks were slightly ahead of gainers on the New York Stock Exchange, where volume came to 1.1 billion shares.

Bond prices rose as investors worried about the economy sought safety the safety of government securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.99 percent from 3.05 percent late Wednesday.

For much of the day, the market was down on pessimism about weak economic reports — a problem that will continue to dog the market. A day after the Federal Reserve issued a slightly more bleak outlook on the economy, steep drops reported in the Empire State and Philadelphia Fed Manufacturing indexes pointed to a slowing in manufacturing activity in the Northeast. Meanwhile, the Fed reported modest growth in industrial output nationwide. And the Labor Department said first-time claims for unemployment benefits fell last week, but that was largely due to seasonal factors.

"We've hit a soft spot," Howard Ward, chief investment officer at GAMCO Growth Fund, said of the economic recovery. "The question is, are we starting to already improve or are we still falling down."

The disappointing manufacturing reports, which followed a weeklong stock rally, made the market "susceptible to profit taking" after the market's week-long advance, Ward said.

There appeared to be a shift in investors' view of the economy. They had been upbeat over the past week on more positive economic signs, in particular forecasts from companies including Intel Corp. and Alcoa Inc. But the latest disappointing numbers now seem to be dictating investors' moves, and analysts questioned whether investors would start buying again if companies keep reporting strong earnings and outlooks.

JPMorgan Chase, the first big bank to report its second-quarter earnings, said it had set aside less money to cover losses on failed loans. That is a sign that mortgage and loan defaults may be moderating. But Dimon kept a cautious tone about future economic growth.

"Earnings are strong," said Sandy Mehta, principal and chief investment officer of Value Investment Principals. "But the underlying economy is not as strong."

Quotes delayed 15+ min.

JPMorgan Chase rose 11 cents to $40.46. Several other big banks fell. Bank of America Corp. dropped 28 cents to $15.39 and Citigroup Inc. fell 5 cents to $4.16. Both companies report earnings on Tuesday.

Caterpillar Inc. fell 19 cents to $66.51 on the downbeat manufacturing reports.

The euro climbed above $1.28 for the first time in more than two months Thursday as investors worried about the strength in the U.S.

Overseas, Britain's FTSE 100 fell 0.7 percent, Germany's DAX index fell 1 percent, and France's CAC-40 fell 1.4 percent. Japan's Nikkei stock average fell 1.1 percent.

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