Late surge pulls stocks away from bear territory

Associated PressOctober 5, 2011 

— A late afternoon surge capped another wild day Tuesday on Wall Street, bringing the S&P 500 back from the brink of entering a bear market. Stocks jumped on reports that European officials were working on a joint effort to prop up the region's struggling banks.

The Dow Jones industrial average closed with a gain of 153, erasing a 200-point deficit in the last 40 minutes of trading. It was down for the whole day before turning positive just 10 minutes before the closing bell.

Indexes opened sharply lower as traders worried that Greece could be edging closer to default. Stocks pared their losses at midday after Federal Reserve Chairman Ben Bernanke told a congressional panel that the central bank could take more steps to stimulate the economy, then slumped again in the afternoon.

At 3:25 p.m., the market began rising quickly after several news outlets reported that European finance ministers were working on a way to coordinate efforts to support European banks, as they did during the financial crisis in 2008. Worries that U.S. and European banks could get hammered by a Greek default have been a major concern among investors.

"Right now fear is trumping fundamentals, and people are buying on nothing more than rumors," said Mark Lamkin, head of Lamkin Wealth Management.

The Dow closed with a gain of 153.41, or 1.4 percent, to 10,808.71.

The Standard and Poor's 500 rose 24.72, or 2.2 percent, to 1,123.95. It had been down as many as 24 points in morning trading, 20 percent below its April peak. Had the index closed with a decline that size, it would have met the typical definition of a bear market.

The technology-focused Nasdaq rose 68.99 points, or 3 percent, to 2,404.82.

Smaller stocks rose much more than the overall market. The Russell 2000 index of small companies gained 39.15, or 6.4 percent, to 648.64.

Analysts attributed the bounce in small companies to steep losses in the index the day before as investors picked up stocks that they considered cheap. The Russell index had plunged 5.4 percent Monday.

In testimony before Congress, Bernanke said the central bank is ready to take more steps to stimulate the economy. That could mean another round of bond purchases aimed at lowering interest rates and encouraging lending.

Analysts said Europe's debt problems overshadowed signs that the U.S. economy continues to grow slowly, including a 10 percent jump in auto sales in September and an increase in a measure of U.S. manufacturing.

"Collectively, the data here in the U.S. hasn't been that bad, but investors are looking at Europe and saying, 'I don't care what the U.S. fundamentals are when we've got much bigger problems overseas that may eventually wash onto our shores,' " said Phil Orlando, chief stock strategist at Federated Investors.

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