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Stocks Log Worst Aug. in 10 Years; Dow Up for 2011

Stocks finished higher in volatile trading Wednesday to mark a four-day rally, but despite the recent gains, all three major indexes still logged their worst month since last May.

The major averages also logged their worst August in 10 years.

The Dow Jones Industrial Average rebounded in volatile trading to finish in the black for the year. The Dow has had 16 triple-digit moves during August.

Alcoa and AmEx led the blue-chip gainers, while AT&T tumbled.

The S&P 500 and the Nasdaq also finished higher. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell near 31.

Techs and telecom were among the two biggest S&P sector laggards.

August was an extremely volatile month for stocks. The market took multiple sharp nosedives following the S&P’s downgrade of U.S.’s credit rating , ongoing European jitters and renewed fears over a global recession. Meanwhile, investors swooping in to take advantage of beaten-down sectors in addition to a handful of strong economic news helped pare some of the losses throughout the month.

Still, the gains were not enough to put stocks on firm footing for the month—all three major indexes are down by more than 4 percent each.

“With the lower-volume days and headline-driven market we have, you can easily get whipsawed,” said Sal Arnuk, co-manager of trading at Themis Trading. “Most people are better off waiting until we get more appropriate volume.”

AT&T slumped to lead the Dow and S&P 500 laggards after the Justice Department filed to block the telecom giant's takeover of T-Mobile, saying the merger will hurt U.S. consumers, according to reports.

Earlier, the telecom company pledged to bring 5,000 wireless call center positions back to the U.S. if it is granted approval to proceed with its $39 billion acquisition. Rival Verizon also traded lower, while Sprint soared almost 7 percent.

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Meanwhile, cell phone tower companies such as American Tower , SBA Communications and Crown Castle International climbed following the news.

On the tech front, Oracle was flat after a report that U.S. authorities are investigating whether the software giant violated federal anti-bribery laws in its dealings in Africa.

Sony is expected to launch its new tablets, but the Japanese electronics maker faces an uphill battle against market leaders such as Apple and Samsung.

Other companies have jumped on the tablet bandwagon in recent months including Amazon.com and Hewlett-Packard . HP said it plans to crank out a final round of its TouchPads, days after saying it will end manufacturing a line of tablets that failed to challenge Apple's iPad.

Bank of America is looking to sell its correspondent mortgage business and the unit's employees could be notified as soon as Wednesday, according to the Wall Street Journal.

Meanwhile, a rally among regional banks helped boost the financial sector higher. HuntingtonBank , PNC Financial and State Street all climbed 2 percent.

Zipcar jumped after Ford agreed to supply vehicles to the car-sharing firm at over 250 colleges throughout the nation .

Gold prices gained to settle at $1,828.50 an ounce. The precious metal has soared almost $200 an ounce this month, or 12 percent, logging its largest monthly percentage gain since Nov. 2009.

Trading volume was on the lighter side with the consolidated tape of the NYSE at 4.43 billion shares, while 1.27 billion shares changed hands on the floor ahead of a holiday weekend.

On the employment front, private sector job growth slowed for the second month in August with employers adding 91,000 jobs, according to payrolls processor ADP. Meanwhile, outplacement firm Challenger, Gray & Christmas reported that planned layoffs fell 23 percent to 51,114 in August.

The employment reports come ahead of the widely-followed government non-farm payroll figures at the end of the week.

Meanwhile, President Obama urged Congress to pass an extension of a federal highway bill, which will protect a million jobs. The President's statement comes ahead of a speech after the Labor Day holiday on the jobs market and the economy. However, some economists are skeptical Obama will get Congress to agreeto significant new spending on jobs.

“We still have a lot of economic data coming up—and September is going to be determined by whether the numbers hold together,” said Jim Paulsen, strategist at Wells Capital Management. “As long as we don’t have recessionary numbers, we’re going to continue seeing a rally.”

Paulsen said he’s optimistic of the economic outlook in the second half of the year.

“I think we’re going to grow 3 percent in the second half,” he said, adding that the market will see a rebound as equities have been largely oversold in the recent months. “We’ll take 4 or 5 weeks before people calm down.”

Among other economic news, new orders for U.S. factory goods jumped in July, according to the Commerce Department. Meanwhile, Chicago PMI slowed in August, hitting its lowest level since Dec. 2009.

Weekly mortgage applications showed a sharp dropoff as refinancing requests tumbled, according to the Mortgage Bankers Association.

European shares closed sharply higherfor the third session, but posted its biggest monthly decline in almost three years.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC

Coming Up This Week:

THURSDAY: Weekly jobless claims, productivity and costs, ISM Mfg index, construction spending, chain store sales, auto sales
FRIDAY: Non-farm payroll

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