Stocks rose one day after the biggest market declines in four years as investors appeared confident the fundamental outlooks in the U.S. and global economies are still sound.
Investors took cues from Fed Chairman Ben Bernanke, who soothed investors with positive comments on the U.S. economy when he testified before Congress Wednesday morning. Bernanke said no single trigger caused Tuesday's stock stock meltdown and the economy remains stable with "no material change in our expectations."
Abby Joseph Cohen, chief investment strategist at Goldman Sachs told CNBC that stocks still look good and expects the S&P 500 to end the year about 10% above current levels.
"The valuation, if anything, has gotten a little bit better," Cohen said. "Going forward, what matters is that the global economy still looks good."
The Dow Jones Industrial Average rose over 100 points in the morning but took back gains by the close of trading. The S&P 500 rose, with 76% of constituents closing up while the modest gain in the Nasdaq took the tech-heavy index back into positive territory for 2006.
Stocks traded in a wild range during Bernanke's appearance before the Senate this morning, as investors shifted out of riskier shares.
"People are falling back and regrouping and finding where values are," Dan McMahon, head of listed trading at CIBC World Markets, told CNBC.com in an interview.
McMahon said he wasn't surprised by the big swings earlier today. "You are seeing a bit of flight to the defensive issues like healthcare, I expect will see exaggerated volume over the next few days."
Trading volatility, as measured by the Chicago Board Options Exchange Volatility Index, fell sharply on Wednesday after its biggest jump ever on Tuesday. The VIX was down 16% in following Tuesday's spike of 70%. The VIX is considered Wall Street's fear gauge and typically rises in step with investor anxiety and falls when investor complacency reigns.
Goldman's Cohen said shares of high quality, cash-rich companies -- with rising sales and earnings growth and strong balance sheets -- have "very good value" at current levels.
Stocks saw buying across the board as advancing stocks outpaced decliners by a two-to-one margin on the New York Stock Exchange. Dividend-paying telecom stocks and the safe haven consumer staples sector were the clear winners among S&P 500 sectors.
"It was a wiggle in the long term scheme of things," said Don Hays, president and chief investment strategist of Hays Advisory Group. "In six months people will have a hard time even remembering things from yesterday."
Hays, however, said he wouldn't be surprised to see more downside "wiggles" over the next few months.
Specialists at the New York Stock Exchange kept their trading books open after the usual 4:00 p.m. close on Wednesday as experts questioned the exchange's reliability a day after computer system glitches led to trading delays.
In company news, Merck rose after the drugmaker provided fiscal first-quarter guidance above analysts' forecasts. Merck said it expects to earn 63 cents to 67 cents a share, compared with Thomson Financial consensus forecast of 60 cents. The Whitehouse Station, N.J. company also said it expects 2007 earnings in a range of $2.55 to $2.65 a share, compared with the consensus estimate of $2.62.
Consumer goods giant Procter & Gamble provided a lift for the Dow as investors shifted to defensive stocks. CNBC's Jim Kramer predicted the move yesterday.
Home improvement retailer Home Depot said it expected per-share profit to decline 4% to 9% this year as the weak U.S. housing market pressures sales.
Sprint Nextel led telecom stocks higher after the company reported in-line fourth-quarter results as chatter regarding a potential buyout continued to draw in speculators.
Sun Microsystems rose more than 2% after Goldman Sachs upgraded the stock to "buy" from "neutral," saying the stock's recent 4.6% decline on Tuesday and rising profit margins make it look more attractive.
Elsewhere in tech, shares of Apple Computer rose after the company said it's iPhone will ship in June as planned, while shares of beaten-down chip bellwether Intel declined modestly.
Treasury prices were lower after three straight sessions of gains, sending yields higher.
New York light crude futures were were trading in a tight range in morning trading Wednesday, remaining below $61 a barrel. Government inventory data showed that weekly crude inventories had a slightly smaller than expected build.
On the economic front, revised fourth-quarter GDP rose 2.2%, down from an earlier estimate of 3.5%, but in line with economists' expectations. New home sales came in below expectations, falling 16.6% in January to a seasonally adjusted rate of 937,000. It was the lowest sales pace in four years and the largest percentage decline in 13 years.
Europe Ends With Modest Declines, Asian Stocks Plunge
European stocks closed lower but fared better than their counterparts in Asia as investors were encouraged by early gains in U.S. markets.
In Frankfurt, the DAX closed lower as utility E.ON fell wider than 4% as its bid for Spain's Endesa was jeopardized by Italy's Enel, which built up an almost 10% stake in Endesa.
The Paris CAC-40 closed with losses of about 1% as construction materials firm Lafarge closed down about 3%. The FTSE-100 in London finished with a decline of 1.2%.
Stocks in Japan and South Korea each closed with losses wider than 2.5% but ended higher than intraday declines of about 4%. The Nikkei 225 Average closed 2.85% lower, the biggest drop in eight months. Shares of Nikko Cordial plunged 15% on reports the Tokyo Stock Exchange would delist the brokerage firm's stock.
Speculators in China remain undeterred by the ripple effect caused by the selloff of a day earlier, bidding up stocks in the Shanghai Composite Index almost 4%. Tuesday's downside move of 8.8% erased about $140 billion of value, that market's biggest fall in a decade.
Hong Kong's Hang Seng Index closed down 2.5% but bargain hunters saw a buying opportunity for shares of China Mobile .