Dow Erases Losses as Financials Claw Back

Stocks were lower Friday but just barely as the Dow and S&P erased much of the losses inflicted  by the sharp rise in the unemployment rate.

All three major indexes -- the Dow Jones Industrial Average, S&P 500 and Nasdaq -- ended Thursday in bear-market territory, 20 percent below their October highs, and continued to slide at the opening bell Friday. But the Dow and S&P pared their losses in afternoon trading as financials, consumer stocks and some techs started to come back.

Half of the Dow stocks were higher in afternoon trading. Click here to see which ones they were and which stocks were the biggest Dow losers.

Some of this week's selling was because some mutual funds end their fiscal year at the end of October and cash out their losing positions. Plus, some investors are gearing up to get money out of the market by year end for tax reasons.

And, some of it was investors overreacting upon their return to the market after a two-week hiatus at the end of the summer, when volumes were half the daily average.

"We are in a bear market," explains Yiorgo Areto, founder and CEO of the TMP Project. People came back to the market and, "the truth of the matter is they didn't really know where to look," he said.

But get your GPS — and your wallet — out for next week.

"There will be a turnaround and strength next week," Areto said. "Not as powerful as the rest of the month but next week will be a kick start."

The August jobs report got the day off to a dismal start. Nonfarm payrolls turned in a predictable enough decline of 84,000 jobs but the unemployment rate jumped to 6.1 percent, blowing past the 5.7 percent expected to its highest level since September 2003.

This was the second gigantic leap in the unemployment rate this year, the first being the jump from 5 percent to 5.5 percent in May. And Tony Crescenzi of Miller Tabak, who expects the economy to enter a "dark period" later this year, noted that the unemployment rate has now soared past the Fed's projections of 5.5 percent to 5.7 percent for 2008 and 5.3 percent and 5.8 percent for 2009.

Th dismal jobs report followed a pair of disappointing readings on employment on Thursday: Initial jobless claims rose by 15,000 last week, snapping a three-week declining streak, and ADP payroll service reported that private employers cut 33,000 jobs from their payrolls in August.

That sent the market into a downward spirl, with all three major indexes losing 3 percent or more in Thursday's trading, by far the worst day for the market this week.

(Worried about your own job? Click here to find out what sectors are most at risk.)

Financials were among the big catalysts for the comeback in the market, with Bank of America , AIG , JPMorgan and Citigroup the four horsemen leading the Dow.

Lehman Brothers jumped after Blackstone Group and KKR expressed an interest in buying parts of Lehman's real-estate asset-management division. A slew of names have been bandied about this week as potential suitors for all or some of Lehman, including HSBC, Mitsubishi UFJ Financial Group and Korea Development Bank.

Even Merrill Lynch partook in the rally. The stock had skidded ealrier after Goldman Sachs slashed its forecast and cut its rating on the brokerage to "sell," saying it sees a fresh wave of writedowns coming.

In addition to the jobs report, the market was buzzing about some M&A news.

Altria is in advanced talks to buy UST, the maker of the popular Skoal and Copenhagen smokeless tobacco brands, for more than $10 billion, the New York Times reported. UST shares surged 24 percent.

SanDisk soared 28 percent following news that Samsung Electronics, the world's top maker of memory chips, might buy the flash-memory-card maker.

However, the SanDisk news wasn't enough to perk up the tech sector, where the warnings continue to pile up.

Dell started this latest round of warnings last week when it issued disappointing results and warned of a global slowdown. Now, the computer maker plans to sell its computer factories around the world in order to cut costs and improve its profitability. Analysts said Dell's problem was that it cut prices too much in an attempt to grab — or buy — more market share.

Nokia tossed its hat in the ring, warning that its market share is going to take a hit in the third quarter amid softness in the global economy and tough competition. Analysts said Nokia, the world's top mobile-handset maker, hasn't been as aggressive with pricing as some of its competitors.

Also issuing warnings this week were networking-gear maker Ciena and Corning