Stocks End in Positive Territory After Volatile Trading

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	DJIA 8,979.26  +401.35    NASDAQ 1,717.71  +89.38    SPX 946.43  +38.59    S  3.33 0.00    LMT  92.61 +5.14    FNM  0.99 -0.01    DJIA 8,979.26  +401.35    NASDAQ 1,717.71  +89.38    SPX 946.43  +38.59    S  3.33 0.00    LMT  92.61 +5.14    FNM  0.99 -0.01

Personalize Ticker | Updated 4:00 PM, 10/16/2008	Disclaimer | © MarketWatch Inc. Source: Interactive Data Corp

Stocks staged a late-day rally today and ended a volatile day of trading in positive territory despite lingering recession concerns.

The Dow Jones industrial average was down as much as 376 points at one point, but closed up 4.7 percent, or 401 points, at 8,979. The Standard & Poor's 500-stock index gained 4.3 percent, or 39 points, to end the day at 946.

The tech-heavy Nasdaq rose 5.5 percent, or 89 points, to 1,718. It was helped by a 10.5 percent surge in Yahoo's share price. The Internet firm received a boost from reports that Microsoft's chief executive, Steve Ballmer, said a deal between the companies might still make economic sense. Yahoo rejected a previous offer from Microsoft, which closed up 6.8 percent. Both firms were among the most actively traded companies in the Nasdaq today.

There is a battle between investors who are confident stocks have reached their bottom and others who see more downside to come amid gloomy economic data and corporate earnings. "This is a sucker's rally," said Joseph Brusuelas, chief U.S. economist at California-based Merk Investments. "There's a very difficult period ahead."

Today's gains follow the markets' huge dive yesterday, when the Dow fell more than 700 points.

Analysts said investors no longer question whether there will be a recession, but instead are worried about how long it will last and how deep it will be.

The government's responses to the financial crisis, from lowering interest rates to taking stakes in major banks, are good steps toward stability, economists and analysts have said. But they do not address the more immediate economic problems and have yet to drastically impact the credit squeeze as lenders remain reluctant to lend to each other.

Market volatility has become the new norm, said Doug Roberts, chief investment strategist for New Jersey-based Channel Capital Research. "Right now people are worried things are going to fall off a cliff. Every bit of news moves the market," he said.

Economic data released by the Labor Department today was mixed. New claims for jobless benefits dropped by 16,000 last week to a seasonally adjusted 461,000. That was a bigger drop than expected, but unemployment claims remain high by historical standards. And consumer prices were flat in September, according to the Consumer Price Index, a closely watched barometer of inflation.

Two Federal Reserve-related reports today painted a more bleak economic picture. Factory activity in the mid-Atlantic region is experiencing its largest one-month decline this month, according to the Federal Reserve Bank of Philadelphia, and the region's manufacturing executives expect no growth during the next six months. Also, the Federal Reserve reported today that industrial production fell 2.8 percent in September, the biggest plunge since December 1974.

"While the collapse in the U.S. housing sector and simultaneous drop in consumer confidence has prompted U.S. manufacturers to cut back sharply this summer, it has been the recent banking crisis and credit freeze that has turned the manufacturing recession into a outright collapse," said Michael Woolfolk, senior currency strategist for Bank of New York Mellon, in a research note this morning.

The collapse in industrial production parallels the sizable drop in retail sales released yesterday, punctuating the onset of a recession, analysts said. Retail sales in September took their steepest monthly decline in three years, according to a report released yesterday. Those concerns were amplified by Nation Retail Federation survey today showing that consumers planned to increase holiday-related shopping by 1.9 percent this year, a paltry sum that is the smallest increase since the survey began in 2002.

Investors have also been spooked by the impact of the financial crisis on many firm's balance sheets and their outlook through the rest of the year. Merrill Lynch, which is being acquired by Bank of America, reported a $5 billion loss during its third quarter this morning, while Citigroup reported a loss of $2.8 billion. Both firms have been battered by the credit crisis.

Merrill Lynch was basically flat, registering a 0.6 percent gain, and Citigroup was down 2 percent.

The financial crisis also continues to help drive down crude oil prices as the economic turmoil saps demand. The price of oil fell 6 percent, or $4.55, to $70 a barrel today. Before yesterday, oil had not traded below $75 a barrel in more than a year. But with demand dwindling, many analysts now expect prices to fall to as little as $50 a barrel.

The financial crisis also continues to churn overseas. Swiss authorities moved to stabilize financial giant UBS today, agreeing to move $60 billion in troubled assets from the company's books into a special government-backed fund.

Foreign markets were down. London's FTSE 100 and the CAC 40 in Paris were down more than 5 percent, and Germany's DAX fell 6.7 percent today. But the losses were larger in Asia as the Nikkei stock average in Japan closed down more than 11 percent.