As quickly as the rally began, it ended.
Stocks had bounced back Thursday following a report that a compromise has been reached on an auto bailout. But key lawmakers told CNBC that a deal may have to wait until December and the market retreated.
Stocks struggled to hold gains through most of the day as jobless claims hit a 16-year high, exacerbating anxiety in the market as Congress spins its wheels on the auto bailout and the TARP.
This followed Wednesday's crushing selloffthat saw the Dow close below 8,000 for the first time in more than five years.
The Dow Jones Industrial Average wobbled after touching its recent intraday low in morning trading. The S&P 500 index and Nasdaqalso wavered, after touching their recent lows on Wednesday.
The declines have been so bad that now more than 100 stocks in the S&P 500 are below $10.
General Motors and Ford rocketed more than 40 percent after the Detroit Free Press reported that key senators reached a compromise on the $25 billion bailout. It was unclear whether there were enough votes to pass the bill today.
Meanwhile, GMAC, the money-losing partnership between General Motors and Cerebrus Capital Management, announced that it has applied to become a bank-holding company.
Chrysler hopes to restart merger talks with GMif the government comes up with a bailout package for auto makers, the Financial Times reported Thursday.
"It’s going to be a tough couple of days," Art Hogan, chief market analyst at Jefferies, told CNBC. "We need to get some clarity on what’s happening with GM and Ford. We certainly need to find out what the TARP plan really is going to look like ... The sooner we can find out what the new plan is and where we’re going with that, the better off we’re going to be," Hogan said.
Economic data came in worse than expected: The Philadelphia Federal Reserve reported its gauge of regional manufacturing activity contracted further, to minus-39.3 in November from minus-37.5 in October. Nationwide,leading indicators dropped 0.8 percent in October, after a downwardly-revised 0.1-percent gain in September. Economists had expected a reading of 35 on the Philly Fed and minus-0.6 percent in leading indicators.
Jobless claims rose by 27,000to a seasonally adjusted 542,000 last week, well above the 508,000 economists had expected and the highest since July 1992. Continuing claims rose by 109,000 to 4.01 million.
Boeing announced plans to cut about 800 jobs, or one-quarter of the staff, from its defense unit operations in Wichita, Kansas.
Tech stocks advanced, with Yahoo up nearly 10 percent after Needham raised its rating on the stock to "buy" from "hold."
Verizon and AT&T were the top gainers on the Dow.
Amazon , eBay and Intel were among the top gainers on the Nasdaq.
Oil briefly fell below $50 a barrel, offering some economists a sliver of hope.
Today's economic data show that “the decline in the economy is still accelerating. We’re still in freefall right now in terms of this quarter," Stuart Hoffman, chief economist at PNC Financial Services Group, told CNBC. But, at some point, he said, the rapid decline in oil is going to have a stimulative effect.
"It's a billion dollars for every penny that gasoline goes down. We're talking $150 to $200 billion dollars compared to last summer consumers are not going to be pumping into their tanks," Hoffman said. "Right now, admittedly, in this freefall, it’s not offsetting the loss of confidence but you gain some confidence, you see that drop in oil and other commodity prices, corporate profits, consumer spending — I think that’s a little bit of a silver lining in what is admittedly a pretty dark sky."
Attention will turn from the beleaguered Big Three auto makers to the former heads of Fannie Mae and Freddie Mac as they are due to face a grilling from lawmakers later today.
Citigroup stock dropped another 20 percent, following Wednesday's 23-percent drop, leaving it hovering just about a dime above the $5 mark. Earlier, the stock had gotten a little bounce following news that Saudi Prince Alwaleed Bin Talal Alsaud had raised his stake in the company to 5 percent. However, the stock resumed its descent after investors figured out that the prince's investment was likely just dollar-cost averaging.
JPMorgan shares fell more than 10 percent after the firm announced plans to cut about 10 percent of its investment-banking staff.
General Electric skidded after the conglomerate, the parent of CNBC, said it has no plans to raise capital from sovereign-wealth funds.
PepsiCo ticked higher after the beverage giant reiterated its full-year outlook and said it was planning to reveal later in the day innovation ideas for its North American beverage unit.
The Federal Reserve pared its outlook for economic growth through 2009 leading market watchers to expect further cuts to the base interest rate. It also added to the growing fear of a deflationary spiral taking hold of the economy.
Treasury Secretary Henry Paulson will speak about the economic outlook at 2 pm in the Reagan Library in Simi Valley, California.
And St. Louis Fed President James Bullard is due to talk at an economic forum in Evansville, Indiana at 7 pm.
Still to Come:
THURSDAY: Fed's Bullard speaks; Earnings from Dell and Gap
FRIDAY: Fed's Plosser speaks; Earnings from Heinz
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