Stocks managed a moderate advance Thursday, staying afloat as signs of strength in corporate takeover activity, jobs and overseas markets allowed investors to stomach a sharp rise in wholesale inflation.
Wall Street still displayed nervousness, however, selling off briefly after former Federal Reserve Chairman Alan Greenspan rekindled investors’ woes about subprime mortgages. The knee-jerk dip was illustrative of how jittery the markets are now, recoiling when reminded that no one yet knows the extent to which weak areas of economy, notably the struggling housing market and hemorrhaging subprime lenders, will hurt overall growth in the months ahead.
Trading was erratic at other points in the session, but most investors on Thursday chose to buy up bargains following a 242-point drop in the Dow Jones industrials on Tuesday and a 57-point recovery on Wednesday that suggested the market is holding above the index’s 12,000 mark — at least for now.
“There’s some optimism because the market had fallen quite a bit and it showed resilience yesterday, which is encouraging,” Ed Peters, chief investment officer at PanAgora Asset Management Inc. in Boston, adding that the sentiment could shift on the Consumer Price Index’s release Friday. “Some days the pessimists win, some days the optimists win. The market goes back and forth.”
A bidding battle for commodities exchange CBOT Holdings Inc. also gave stocks a lift. Despite the cooling economy, merger and acquisition activity has been surging, leading some investors to believe that problems in some sectors haven’t seeped into the stronger areas of the economy.
The Dow rose 26.28, or 0.22 percent, to 12,159.68. The Dow is 627 points below its closing high of 12,786.64, reached Feb. 20.
Broader stock indicators were also higher. The Standard & Poor’s 500 index gained 5.10, or 0.37 percent, to 1,392.28, and the Nasdaq composite index advanced 6.96, or 0.29 percent, to 2,378.70.
Bonds fell slightly as stocks rose. The yield on the benchmark 10-year Treasury note was at 4.53 percent, lower than 4.54 percent late Wednesday.
The dollar was mixed against other major currencies, and gold prices rose.
Stocks briefly retreated after Greenspan said at a conference in Boca Raton, Fla., that the troubles in mortgage lenders are not yet spilling into the broader economy, but could if home prices see another substantial decline.
There was also a short pullback in stocks ahead of the Philadelphia Fed’s manufacturing index, which showed that the region’s manufacturing growth slowed in March. Wall Street had expected activity to increase. Earlier, the New York Fed had also reported a steep deceleration in its March manufacturing growth.
The manufacturing reports came amid the Labor Department’s Producer Price Index for February, which jumped by 1.3 percent, twice the amount the market was forecasting.
But investors largely shrugged off the reports Thursday, not shocked that manufacturing is retreating and hopeful that even though inflation is high, economic weakness could compel the Fed to lower rates.
“People should be thinking that the odds of the Fed cutting rates are pretty slim this year, but there seems to be this dogged optimism, or blind hope, that that will happen,” Peters said.
The Fed meets next week to decide whether to adjust short-term interest rates. It is expected to keep rates on hold, but any statement that indicates policymakers might raise or lower rates later in the year could move stocks.
Though the market has steadied itself since Tuesday’s drop, market watchers aren’t discounting the possibility of more seesawing as new data trickles in and as investors try to get a sense of how widespread the problems facing subprime lenders are. Subprime lenders make loans to people with poor credit; rising defaults in those loans have helped trigger the market’s recent plunges.
“We haven’t hit bottom yet, so we’re going to get these pretty violent swings,” said Barry James, president and chief executive of James Investment Research Inc. “But we don’t see this as the beginning of a big bear market yet. We think this just a normal correction.”
Volatility was also high ahead of contract expirations Friday for stock index futures, stock index options, stock options and single stock futures.
Stocks got a boost from IntercontinentalExchange Inc.’s unsolicited $9.9 billion all-stock bid for CBOT Holdings. ICE’s bid followed an already agreed-upon $8 billion takeover of CBOT by Chicago Mercantile Exchange Holdings Inc.
CBOT rose $28.86, or 17 percent, to $194.95; ICE fell $3.83, or 3 percent, to $128.10; and CME fell $31.09, or 5.5 percent, to $532.88.
In other takeover news, Cisco Systems Inc. agreed to acquire Web conferencing company WebEx for about $3.2 billion in cash, while General Electric Co.’s Capital Solutions business and Blackstone Group agreed to buy PHH Corp. for $1.69 billion. PHH provides mortgage and vehicle fleet management services.
Cisco fell 4 cents to $25.81, and WebEx rose $10.18, or 22 percent, to $56.38.
GE rose 21 cents to $34.52, and PHH rose $3.29, or 11.8 percent, to $31.10.
Markets also appeared confident that the job market is holding steady. The Labor Department Thursday said the number of Americans seeking unemployment benefits fell for the second straight week. Analysts note, however, that the data can swing drastically from week to week.
Asian and European markets advanced. Japan’s Nikkei stock average rose 1.10 percent. Britain’s FTSE 100 gained 2.21 percent, Germany’s DAX index added 2.14 percent, and France’s CAC-40 advanced 1.77 percent.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.51 billion shares, down from 2.07 billion shares Wednesday.
The Russell 2000 index of smaller companies was up 7.93, or 1.02 percent, at 783.61.
Oil prices fell 61 cents to settle at $57.55 a barrel on the New York Mercantile Exchange, after the Organization for Petroleum Exporting Countries decided to keep output steady, as expected.