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Stocks Close Up Sharply On Bargain-Hunting

Stocks closed sharply higher as bargain hunters rushed back into the market to scoop up beaten-down shares.

The desire to buy stocks at cheap prices offset worries about a sharper economic and consumer downturn.

The market bounced back after the S&P 500 and Nasdaq fell past their lows for the year and the Dow briefly dipped below 8,000 but then closed up above 8,800, a swing of nearly 900 points in one day.

Some on the floor saw the Dow's recovery as technically significant.

"I think 8000 is starting to appear to be a very, very strong support level," Peter Costa, of Eckhardt & Co., told CNBC.

There was speculation over what might happen next in terms of forming a market bottom.

"You've got two things that can happen," Art Cashin, director of floor operations at UBS, said on CNBC before the lows were breached. "You test and you break, and if you break badly you can swing into a kind of a capitulation mode. If you test and you hold you could get one whopping rally that could last for months and you go up 35 to 40 percent."

Stocks earlier faced pressures from more bad news about the economy and worries over government waffling on its bailout plans for the financial sector.

Government data indicated that new jobless claims sprinted above 500,000 for the first time in seven years. In addition, the trade gap closed to $56.47 billionas cash-strapped consumers bought fewer foreign goods.

Banks, Tech Lead the Way

Financials and technology leaders controlled the day's trading, even though Citigroup continued its stunning decline to fall below $9 a share.

The Wall Street Journal reported that Citi is in talks to buyChevy Chase Bank even as some directors on Citigroup's board are considering trying to replace chairman Win Bischoff. Later in the day Citi denied Bischoff was on the firing line and said the Journal report but was inaccurate, but shares remained under intense pressure.

Shares of CIT Group surged after the financial services applied for status as a bank holding company, a move that would make it eligible for government bailout funds.

And a host of other big banks also charged higher during the market's whipsaw rebound, with First Third Bancorp lighting the way.

Caterpillar also surged higher after the 1 pm selloff to boost the Dow into green numbers as the biggest gainer on the index.

At the same time, General Electric shares were off sharply amid talk that the CNBC.com parent was cutting its dividend, a rumor it refuted in a late-morning statement.

Wal-Mart shares wobbled after it beat earnings estimates but lowered its fourth-quarter earnings forecast before of the bell. Its profit guidance for continuing operations is now between $1.03 and $1.07 a share, which is lower that the consensus estimate of $1.11. Market experts analyze the Wal-Mart results in accompanying video.

Battered automaker General Motors lost an opening-bell spike as Goldman Sachs said it was suspending its rating on the company on doubts over its ability to survive.

American Express was among the bluechip index's biggest losers on continued pessimism following reports the credit card company may seek government bailout funds.

Shares also plunged for WellCare Health after the company said it will be unable to file its quarterly statement and was under investigation by the Department of Justice over whistleblower complaints.

The market is awaiting a speech from Philadelphia Fed President Charles Plosser, who will be taking to the stage at midday in Pittsburgh to speak about the economic outlook. And President Bush will speak at 1:55 pm.

In the housing sector, the number of foreclosures rose by 25 percent in October, compared to a year earlier, according to a monthly report by RealtyTrac.

And Intelslashed its fourth-quarter revenue forecast by $1 billion after the bell Wednesday, citing weak global demand for its microchips.

Computer companies as a group were getting pounded, with steep drops also in Intel's fellow Dow component Hewlett Packard as well as Dell.

Market internals shifted, with gainers beating losers 1.5 to 1 on the New York Stock Exchange on modest volume of 1.12 billion shares by 2:40 pm ET. There were 553 new lows and no new highs.