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Dow Jumps 2%, Its Best Day Since July

Thursday, 29 Oct 2009 | 4:52 PM ET

Stocks rallied Thursday, rebounding off of the prior session's rout, after reports showed the economy grew more than expected last quarter and jobless claims fell.

The Dow Jones Industrial Average gained 199.89, or 2.1 percent, to close at 9,962.58—its best day since July. Though, the index is still about 40 points from the 10,000 mark. The Nasdaq advanced 1.8 percent and the S&P 500 jumped 2.3 percent.

The CBOE volatility index, widely considered the best gauge of fear in the market, fell more than 11 percent to 24.76.

Alcoa and Caterpillar were at the top of the Dow pack, up 9 percent and 5.2 percent, respectively. Merck was the only decliner on the Dow today, down 2.3 percent.

The much-anticipated government report on gross domestic product delivered on hopes that the economy was back in positive territory following a crippling recession: The economy grew at a 3.5 percent clip in the third quarter, ahead of even the healthiest expectations.

At the same time, weekly jobless claims fell and the four-week moving average, widely considered a more accurate barometer of the employment picture, pulled back even more sharply.

It might seem a tad ridiculous that a day earlier we were talking about a correction and today we're up 200 points but traders said a lot of people were short this market and today was a lot of short covering in sectors like financials and energy, which jumped 4.3 percent and 2.4 percent, respectively.

And economists say the third quarter may be as good as it gets— growth may taper in the fourth quarter and into 2010.

"The expansion in Q3 GDP (3.5%) shows we have clearly begun to emerge from the trough," Bart van Ark, chief economist of The Conference Board, wrote in a note following the report. "But there’s still a long way to go," he said, "and we still don’t know enough about the sustainability of these recovery signals."

Another round of positive earnings results helped buoy the market today: Procter & Gamble and Motorola both delivered better-than-expected resultsthat sent their shares higher.

On the downside, ExxonMobildisappointed the market with earnings per share of 98 cents, 5 cents below expectation, as oil prices were down sharply from a year earlier and fuel demand waned.

But Exxon shares finished higher as beaten-down commodity stocks have bounced back in the past few sessions.

The dollar pulled backafter gaining on Wednesday. Oil prices settled near $80 a barrel. Gold jumped $16.50, settling at $1,046.40.

Financials rebounded, after being among the biggest decliners in the prior session. Citigroup jumped more than 5 percent; Dow components Bank of America and JPMorgan were up more than 4 percent.

In Washington, some surprising comments from the Treasury Secretary. In testimony before a House panel, Tim Geithner said the Federal Reserve should lose its authority to bail out big financial firmslike AIG and Bear Stearns, but should remain the lender of last resort.

Friday is the last trading day of October: As of today's close, the Dow is up 2.6 percent for the month, the S&P is up 0.9 percent and the Nasdaq is down 1.2 percent.

Still to Come:

FRIDAY: Personal income and spending; consumer sentiment; Earnings from Chevron

Send comments to cindy.perman@nbcuni.com.

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