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Dow ends another wild day with a gain

The index ends up 401 points after reversing a 380-point drop. Some analysts see no solid basis for the rally.

October 17, 2008|Martin Zimmerman | Times Staff Writer

Another day, another 800-point swing in the Dow Jones industrial average.

At least on Thursday, the arrows were pointing in the right direction as queasy investors finished yet another day riding the stock market.

Thanks to a torrid late-session rally, the Dow ended the day up 401.35 points, or 4.7%, at 8,979.26. It was only the third gain for the Dow in the last 14 trading sessions and was achieved only after overcoming a 380-point drop early in the day.

Analysts were reluctant to read much into the rally, which followed Wednesday's ugly 733-point Dow plunge. They noted that investors remained concerned about the global credit crisis and the mounting signs that the U.S. and many of its trading partners were either in a recession or would be soon.

"We're skeptical," Patrick J. O'Connor, managing editor of Navellier & Associates' Marketmail newsletter, wrote. "There wasn't a solid economic reason that triggered the rebound. If anything, the news continued to be mostly dire."

There were some encouraging signs, however, including oil's first closing price below $70 since August 2007. Crude settled at $69.85 a barrel, down $4.69, or 6.3%.

"Having oil prices come down like this is like a tax cut for consumers," said Allan Rudnick, chairman emeritus of Kayne Anderson Rudnick Investment Management in Los Angeles.

In addition, technology bellwether Google gained 10% in after-hours trading on positive earnings news. Anticipation of Google's results helped boost the tech-heavy Nasdaq composite index 89.38 points, or 5.5%, to 1,717.71.

Also, the Labor Department's report on September inflation was better than expected. The consumer price index was flat while the core CPI, which excludes food and energy, rose 0.1%. Both were below economists' forecasts of 0.1% and 0.2% gains, respectively.

Rudnick noted, however, that even though credit markets continued to show small signs of improvement today, the financial system wasn't out of the woods yet.

"We've got a ways to go before the markets feel comfortable that banks are back in a real lending mode," he said. "It's not going to happen overnight."

The yield on the three-month Treasury bill, which has seen its rate drop to rock bottom as investors hoarded cash, rose to 0.47% on Thursday, up from 0.20% the day before.

Thursday's early losses, which momentarily wiped out what remained of Monday's 936-point gain in the Dow, came after a Philadelphia Federal Reserve report suggested that regional manufacturing conditions weakened this month.

"The only thing keeping us out of recession the last 18 months was exports, and if there's a global recession, which we think there will be, those exports are going to dry up," said Robert Nichols, chief executive of Windward Capital Management in Los Angeles.

The market also has been bedeviled by forced sales by portfolio managers seeking to raise cash, either to bolster investment positions or to meet customer withdrawals. Such sales have been responsible for some of the late-day sell-offs that have plagued the market in recent weeks, Nichols said.

Hedge funds, which have been unloading billions in troubled securities, have been hit especially hard. Investors withdrew $43 billion from hedge funds last month, TrimTabs Investment Research reported, the most since the firm began keeping records in 2000.

In early trading Thursday, both the Dow and the Standard & Poor's 500 index fell below last Friday's closing lows -- 8,451.19 for the Dow and 899.22 for the S&P -- which some analysts had feared could spark a renewed round of selling.

But the drop didn't last long. Instead, after fluctuating through most of the day, stocks rallied strongly as the closing bell neared -- a welcome contrast to the recent trend. The S&P 500 ended the day up 38.59 points, or 4.3%, at 946.43.

Thursday's trading in New York was preceded by sharp declines in foreign markets. In Asian trading, Hong Kong shares lost 4.8%, and Japan's Nikkei index tumbled 11.4%. Stocks were down 5.5% in Britain and 4.9% in Germany.

--

martin.zimmerman@latimes.com

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