In a mirror image of Wednesday's last-minute market sell-off, stock prices shot up in the final 15 minutes of trading Thursday despite a report showing that the third quarter was the worst for the U.S. economy since 2001.
The rally capped another volatile day for Wall Street. The Dow Jones industrial average jumped 275 points in early trading, sank briefly into negative territory and then seesawed before the final surge.
The Dow closed at 9,180.69, up 189.73 points, or 2.1%. The broader Standard & Poor's 500 index closed at 954.09, up 24 points, or 2.6%, and the tech-laden Nasdaq composite rose 41.31 points, or 2.5%, to 1,698.52.
The advance was welcome relief after Wednesday's late decline wiped out a gain of almost 300 points that followed the Federal Reserve's decision to cut its key lending rate to 1%, its lowest level since 2004. The sell-off dashed hopes that the Dow could build on Tuesday's 889-point rally and notch its first back-to-back gains since late September.
Thursday's trading was dominated by the release of a preliminary report from the Commerce Department showing that the U.S. economy contracted in the third quarter as the global credit crisis damped consumer spending.
Investors initially appeared heartened that the 0.3% contraction in third-quarter U.S. economic growth -- the first decline since the fourth quarter of last year and the biggest drop since the third quarter of 2001 -- was less than the 0.5% drop economists had expected on average.
Consumer spending fell sharply in the quarter, dropping at a 3.1% annual rate -- the biggest decline since 1980 and the first decline of any size since 1991.
The report was seen by some as further evidence that the U.S. is headed for a protracted recession because consumer spending accounts for about two-thirds of the nation's economic activity.
An announcement by American Express that it planned to cut 7,000 jobs added to the feeling that the effects of the credit crisis were continuing to ripple through the economy. But the company's shares rose 3.4% for the day.
Analysts who predict a lengthy downturn said Thursday's rally wasn't justified by economic fundamentals.
"We could see a 4-percentage-point decline in GDP in the fourth quarter, and I think the market is just blind to that right now," said John Lynch, chief market analyst for Evergreen Investments in Charlotte, N.C. He said he expected the U.S. economy to struggle through 2009.
