A late-day rally gave the Dow industrials a triple-digit boost after a volatile session in which the blue-chip index swung within a 700-point range.
"I think this is bargain hunting and there are some bargains out there. Some of these stocks are at historic lows," Warren Simpson, managing director at Stephens Capital Management in Little Rock, Ark., told Reuters.
Traders said another cause for the day's wild swings was unwinding of hedged options on the S&P 500 ahead of October options expirations on Friday. The expirations triggered several big buys at the end of the day.
The day was book-ended with rallies. Stocks lurched out of the gate following some not-horrible economic reports: Consumer prices came in flatwhile weekly jobless claims fell. But that rally fizzled after mid-morning reports showed the Philadelphia Fed's index of mid-Atlantic factory activity fell much more than expected and industrial output hit a nearly 34-year low. The Dow Jones Industrial Average retested Friday's closing low around 8450, then fell through to a five-and-a-half year low.
"Looking at inflation right now is like looking in the rearview mirror while ignoring the train wreck dead ahead," said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi. "Even Fed policy makers are saying the economy appears to be in a recession, and that is why the stock market has fallen more than 40% from the highs last year, it is discounting a recession if not outright depression."
The Dow finished up 401.35, or 4.7 percent, to close at 8979.26. That makes 21 out of the past 24 sessions the Dow has made a triple-digit move.
As of today's close, the Dow is up about 530 points for the week. (Of course, at the rate we're going, that doesn't mean anything. Tune in tomorrow!)
The S&P 500 gained 4.3 percent, while the tech-heavyNasdaq advanced 5.5 percent.
The CBOE volatility index, widely considered the best gauge of fear in the market, soared to a new record above 80 before pulling back to 67.61.
With record levels of fear in the market, where do we go from here? History might offer some clues as to when the volatility will subside.
The price of a barrel of oil settled below $70for the first time since last Augustafter a report showed crude inventories rose by 5.6 million barrels, more than double the 2.2-million-increase expected.
The top three gainers on the Dow were: ExxonMobil , Wal-Mart and Alcoa .
Dow component Citigroup was one of the biggest decliners on the Dow, falling 2 percent, after the bank posted its fourth straight quarterly loss amid credit costs and writedowns totaling $13 billion. Citigroup said it's making good progress on shedding assets and cutting costs but warned that tight credit conditions and the potential global recession could cut into other businesses.
Merrill Lynch shares ended up 0.6 percent after the bank reported its fifth straight quarterly loss and missed analysts' target amid writedowns of $9 billion, most of which occurred in September.
Bank of New York Mellon gained 6.3 percent after the bank reported its profit was cut in halffrom a year earlier but still managed to beat expectations.
In the tech sector, the world's largest handset maker Nokia missed expectations as handset makers have taken the global slowdown on the chin. Its shares rose nearly 10 percent, however, after the company soothed concerns about the fourth quarter, saying it wouldn't be as bad as expected.
Yahoo jumped more than 10 percent amid buzz that a Microsoft deal — try to hold your sigh to the end of this song — is still a possibility. Apparently, Microsoft CEO Steve Ballmer said at an IT conference in Orlando that an acquisition of Yahoo would still "make sense economically" for both companies.
And, exhale ...
Diversified manufacturer United Tech reported a 6 percent rise in profit, boosted by continued strong demand for helicopters and products used in commercial construction. Its shares rose 7.4 percent.
Retailers recovered after an earlier selloff over concerns that this could be the toughest holiday for retailers in more than five years.
Consumers are expected to spend an average of $832.36 on holiday shopping this year, up just 1.9 percent from a year earlier, according to the National Retail Federation. That would be the smallest rise since 2002, when the NRF began conducting the survey. (Check out our Holiday Central blogfor the latest on how the holiday season is shaping up for retailers.)
Shares of discount and wholesale chains such as Wal-Mart , Target and Costco were some of the sector's biggest gainers — all three rose more than 6 percent — as that's where consumers shop during tough times.
Macy's was one of the sector's biggest gainers, climbing 16 percent.
Elsewhere, U.S. and European leaders agreed to meet this weekend to prepare for a summit to overhaul the global-financial system. Speculation is growing that the Fed will be forced to cut rates again as consumers struggle through the financial malaise.
-- Albert Bozzo contributed to this article.
Still to Come:
FRIDAY: Housing starts; consumer sentiment; Earnings from Gannett, Honeywell and Sony Ericsson
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