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updated 12/31/2010 6:54:16 PM ET 2010-12-31T23:54:16

For investors, 2010 was a 12-month tug of war between optimism and doubt. Stocks initially strengthened, the job market didn't, and fears of economic collapse in Europe and a chilling "flash crash" left many investors almost too stunned to act.

The year ended with stock markets at their highest level since the 2008 financial crisis on signs of an improving economy. But those same signs are producing worrisome side effects: Interest rates are on the rise, gold now tops $1,400 an ounce and oil prices, poised to exceed $100 a barrel, could send pump prices to $4 a gallon.

None of that seemed possible in the spring when many investors became convinced that the economy would fall back into recession. Then starting in summer, the mood shifted.

Government reports started to show the economy was gaining some strength. Corporate profits surged. And Federal Reserve Chairman Ben Bernanke signaled that the central bank was prepared to pump hundreds of billions of dollars into the economy to stimulate demand.

Major Market Indices

By the close of trading Friday, double-dip recession fears seemed like distant memories. The Standard & Poor's 500's 15.1 percent gain for the year, after dividends, was 53 percent more than its average historical gain.

Whether the gains will continue into 2011 will depend in part on how quickly the unemployment rate, now at 9.8 percent, drops. That will, in turn, be driven by how likely consumers are to increase their spending and how likely corporations are to spend the more than $1 trillion in cash on their balance sheets.

Story: Stocks mixed on last day of year

Many on Wall Street are optimistic that the bull market won't end in 2011. "All of the economic indicators are pointing to stronger growth next year," said Peter Cardillo, chief market economist at New York-based brokerage firm Avalon Partners Inc.

Trading on Friday was quiet and marked by some of the lowest trading volume of the year. The Dow Jones Industrial average rose to 11,577.50, the S&P 500 declined to 1,257.64 and the Nasdaq composite fell to 2,652.87.

Major Market Indices

For the year, each index returned double-digit gains. Over the course of 2010:

— The Dow gained 1,149.46 points, or 11 percent. With dividends, its total return rose to 14 percent.

— The S&P 500 index gained 142.54 points, or 12.8 percent. Including dividends, its total return came to 15.1 percent.

— And the Nasdaq index gained 383.72, or 16.9 percent, to close at 2,652.87. After dividends, its total return came to 18 percent.

Story: Some investors flourish amid economy's year of tumult

In other markets:

— Oil prices ended the year above $91 a barrel after surging 34 percent since May as demand increased from China and other emerging markets. That could push gasoline prices to $4 a gallon by summer in some parts of the country, experts say.

— Gold topped $1,420 an ounce, up 31 percent for the year. Grains and soybean prices also ended the year sharply higher. The reason: China's seemingly insatiable demand for raw materials and speculators betting that they could profitably ride the momentum higher.

— The yield on the 10-year Treasury note ended the year at 3.29 percent. That's low by historical standards, but up from an early October low of 2.38 percent that helped push mortgage rates to 50-year lows. Now mortgage rates are rising again.

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— Economists are predicting the dollar will fare better in the new year after it fell against the euro and the Japanese yen in 2010.

For stock investors, the numbers mask the fact that it was a rocky year. The Dow reached 11,205 and the S&P 500 reached 1,217 in late April, then took a thrill ride downward after it became clear that Greece required an emergency bailout to deal with its debt crisis and fears of a double-dip U.S. recession grew.

Then came what came to be known as the "flash crash" on May 6. The Dow, already down about 400 points on worries about Europe, dropped 600 points in seven minutes. It rebounded 700, then fluctuated before closing with a loss of 347. The sudden drop was later attributed to a fund company that used a complex computer trading program. It had a profound effect on individual investors.

"The flash crash made retail investors take a step back and say, 'Is this really just a legalized gambling arena?"', said Scott Rostan, a financial consultant for investment banks and an adjunct professor at the University of North Carolina, Chapel Hill.

Stocks stayed in a funk through the early summer as economic reports kept pointing to an uncertain recovery, and as the battered housing market was hit again, this time by the end of tax credits for homebuyers. By July 2, the Dow bottomed out at 9,686.48.

What changed?

Shipping company UPS and construction equipment maker Caterpillar — viewed as two bellwether indicators for the economy — both said they saw signs of improvement.

Then just days after Bernanke promised to flood the economy with dollars, investors got unexpectedly good news on Sept. 1 about manufacturing in the U.S. and China.

"It was a market that needed stimulus and responded miraculously," said Quincy Krosby, the chief market strategist at Prudential.

The Dow continued to rise as investors grew more optimistic about the economy. Signs of stronger consumer spending — including a solid holiday shopping season — also helped.

By the end of December, investors began moving money back into U.S. stock funds after selling for every week since May.

That earlier pessimism helped other types of investments, including bonds and gold, flourish.

The yield on the 10-year Treasury note, which moves opposite its price, rose to a yearly high of just under 4 percent in April and then plunged in October as investors kept buying the safety of U.S. government debt. That contributed to a historic drop in mortgage rates that brought 30-year fixed-rate loans to a low of 4.17 percent early in November.

A distrust of the stock market also helped fuel a boom in commodities, which finished 2010 at their highest levels in years. Gold closed above $1,400 an ounce after rising throughout the year on global economic worries. Oil prices rose from a low of $70 a barrel to close the year higher than $90.

In large part because of worries over the health of the euro, the currency shared by 16 European countries before Estonia adopted it Saturday, the dollar rose throughout the year against an index of six heavily traded currencies. It reached its peak in June before falling to nearly the level where it began the year.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Explainer: The top 10 business stories of 2010

  • Image: BP CEO Tony Hayward surveys gulf spill repair work
    AP

    In 2010, the economy rebounded fitfully from the Great Recession — starting strong, wobbling at midyear but showing enough vigor by year's end to quell fears of a second recession. Yet Americans hardly felt relief under the weight of high unemployment, which began the year at 9.7 percent and is now 9.8 percent.

    An oil spill devastated the economy and environment along the Gulf Coast and hammered energy giant BP's stock price and reputation.

    China muscled past Japan to become the world's No. 2 economy, a reminder that the global economic order is shifting and America's supremacy is diminishing.

    It was a year of job shortages and swollen budget deficits that disheartened Americans and caused deep losses for incumbent Democrats on Election Day. The Federal Reserve tried with scant success to jolt the economy with record-low interest rates.

    The struggling economy was voted the top business story of the year by U.S. newspaper editors surveyed by The Associated Press. The oil spill in the Gulf came in second, followed by China's economic rise.

  • 1. Economy struggles

    Image: Unemployment brochures are seen on display at the employment training facility, JobTrain, in Menlo Park, Calif.,
    AP

    Climbing out of the deepest recession since the 1930s, the economy grows at a healthy rate in the January-March quarter. Still, the gain comes mainly from companies refilling stockpiles they had let shrink during the recession. The economy can't sustain the pace. The lingering effects of the recession slow growth.

    The benefits of an $814 billion government stimulus program fade. Consumers cut spending in favor of building savings and slashing debt. Businesses hesitate to hire. Cities and states lay off workers. Growth slows through spring and summer.

    Unemployment stays chronically high. In May, the number of people unemployed for at least six months hits 6.8 million — a record 46 percent of all the unemployed.

    Pointing to the deficits, Congress resists backing more spending to stimulate the economy. The Federal Reserve seeks to fill the void by announcing it will buy $600 billion in Treasury bonds to try to further lower interest rates, lift stocks and coax consumers to spend.

    As the year closes, the economy makes broad gains. Factories produce more. Consumers — the backbone of the economy — return to the malls. Congress passes $858 billion in tax cuts and aid to the long-term unemployed. Yet more than 15 million Americans are still unemployed. Economists say a full economic recovery remains years away.

  • 2. Gulf oil spill

    Image: Plaquemines Parish coastal zone director P.J. Hahn lifts his boot out of thick beached oil at Queen Bess Island.
    AP

    An explosion at a rig used by BP kills 11 workers and sends crude oil gushing into the Gulf of Mexico. The spill devastates the fishing and tourism industries along the Gulf Coast and causes environmental damage that may last for decades. BP sets up a $20 billion fund to compensate fishermen, restaurateurs and others whose livelihoods were damaged.

    The oil giant still faces civil charges and a criminal investigation by the Justice Department and lawsuits from hundreds of individuals and businesses. BP's stock market value shrinks by more than $100 billion after the April 20 disaster before bouncing about halfway back.

  • 3. China's rise

    Image: Workers install scaffolding at a construction site as a Chinese national flag flies near by in central Beijing.
    Reuters

    China passes Japan as the world's second-biggest economy. The World Bank says it could surpass the United States by 2020. China's gross domestic product is spread out over 1.3 billion people — amounting to about $3,600 per person. That compares with GDP in the U.S. of about $42,000 per person. In Japan, it's about $38,000 per person. China's thirst for raw materials and other products helps the rest of the world recover from the recession. Still, the U.S. and Europe complain that China gives its exporters an unfair competitive edge by keeping its currency artificially low.

  • 4. Real estate crisis

    Image: Home for sale
    AP

    Housing remains depressed despite super-low mortgage rates. The average rate on a 30-year fixed mortgage dips to 4.17 percent in November, the lowest in decades. But home sales and prices sink further. Nearly one in four homeowners owe more on their mortgages than their homes are worth, making it all but impossible for them to sell their home and buy another.

    An estimated 1 million households lose their homes to foreclosure, even though the pace slows after evidence that lenders mishandled foreclosure documents. Some did so by hiring "robo-signers" to sign paperwork without checking their accuracy.

  • 5. Toyota recall

    Image: Toyota Master Service Technician Mike Blomberg inspects a gas pedal assembly.
    AP

    Toyota's reputation for making high-quality cars is tarnished after the Japanese automaker recalls 10 million vehicles for sudden acceleration and other problems. Toyota faces hundreds of lawsuits alleging that some models can speed up suddenly, causing crashes, injuries and deaths. Toyota blames driver error, faulty floor mats and sticky accelerator pedals for the unintended acceleration. The uproar damages its business. Toyota's U.S. sales rise just 0.2 percent through November in a year when the industry's overall sales climb more than 11 percent.

  • 6. GM's comeback

    Image: GM headquarters
    AP

    General Motors stock begins trading again. It signals the rebirth of a corporate icon that fell into bankruptcy and required a $50 billion bailout from taxpayers. GM uses some proceeds from its November initial public offering to repay a portion of its bailout. (Washington still holds about a third of GM's stock.) GM's recovery helps rejuvenate the industry. Sales of cars and light trucks rise 11 percent through November compared with the same period in 2009. Shoppers who had put off replacing their old cars return to showrooms.

  • 7. Financial overhaul

    Image: Barack Obama, Christina Romer, Timothy Geithner, Barney Frank, Paul Volcker
    AP

    Congress passes the biggest rewrite of financial rules since the 1930s. The law targets the risky banking practices and lax oversight that led to the 2008 financial crisis. The law creates an agency to protect consumers from predatory loans and other abuses, empowers regulators to shut down big firms that threaten the entire system and shines more light into markets that have eluded oversight. Republican critics say the law goes too far, imposing burdensome rules that will restrict lending to consumers and small businesses.

  • 8. European bailouts

    Image: Athenians walks behind a board showing exchange rates at a foreign currency exchange shop in Athens on Wednesday.
    AP

    Greece and Ireland require emergency bailouts, raising fears that debt problems will spread and destabilize global markets. European governments and the International Monetary Fund agree to a $145 billion rescue of Greece in May and a $90 billion bailout of Ireland in November. The bailouts require both countries to slash spending, triggering protests by workers. Investors fear that debt troubles will spread to Spain, Portugal and other countries, weaken the European Union and threaten the future of the euro as its common currency.

  • 9. 500 million Facebook users

    Image: Mark Zuckerberg
    AP

    Facebook tops the 500-million-user mark. It expands its dominance of social media and further transforms how the world communicates. If it were a country, Facebook would be the world's third-largest. Facebook tightens its privacy settings after criticism that personal information is being disseminated without users' knowledge or permission. Founder Mark Zuckerberg is named Time magazine's "Person of the Year" and is the subject of a high-profile movie about Facebook's creation.

  • 10. iPad mania

    Image: Customer uses an Apple iPad
    AP file

    Apple Inc. unveils the iPad, bringing "tablet" computing into the mainstream and eroding laptop sales. Apple is expected to sell more than 13 million iPads this year. The iPads sell about twice as fast as iPhones did after their 2007 introduction. The price of Apple stock rockets more than 50 percent in 2010. Competitors scramble to try to catch up. They include the Dell Streak, BlackBerry PlayBook, the Samsung Galaxy Tag and HP Slate.

Video: Cautious optimism for 2011

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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.86%
$30K home equity loan FICO 5.20%
$75K home equity loan FICO 4.57%
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Source: Bankrate.com