Stocks closed higher amid continued volatility, reflecting guarded investor optimism ahead of next week's Fed meeting.
"The mood of the market is as variable as the weather here in Manhattan, it's hot one day and cold the next. It's likely to remain that way at least through the end of the quarter," said Charles Crane, managing member with Scotsman Capital Management.
"What I see … is continued earnings growth, reasonable valuations, reasonable interest rates and all the reasons in the world for stocks to be higher a year from now, I don't know about a month from now, though."
Stock prices snapped back from a mild swoon in early afternoon trading following comments from Alan Greenspan. The former Federal Reserve chairman said the current troubles in the subprime mortgage market have the potential to spill over into other sectors.
"You can't take 10% out of mortgage originations without some impact," said Greenspan to a gathering of futures industry representatives. He said that the drop in housing prices is more of a problem than mortgage quality.
Greenspan, speaking at the Futures Industry Association in Boca Raton, Fla. on Thursday afternoon, said subprime woes were "not a small issue" and stemmed from speculators entering the housing markets at their peak.
Today's economic data brought inflation concerns into the spotlight as the Producer Price Index, or PPI, rose 1.3% in February while the core rate rose 0.4%. In addition, the Philly Fed said its regional manufacturing index fell unexpectedly in March; the New York Empire Index plunged to 1.9 in March, its lowest level since May 2005.
Basic materials and utility stocks were the top performing sectors in the S&P 500 while telecom shares such as AT&T lagged. Breadth was again positive on Thursday with advancing shares leading declining shares by a more than two-to-one ratio on the New York Stock Exchange.
But investors remained somewhat cautious ahead of quadruple options expiration on Friday and the Federal Reserve's decision on interest rates next week.
"I'm skeptical of today's move," Marc Pado, U.S. market strategist at Cantor Fitzgerald, told CNBC.com. "I think it's partially driven by traders having an interest in the S&P futures closing above 1400 tomorrow at the open with quadruple witching. You don't have a lot of investors rushing in, the big institutions are waiting to see if we really have bottomed."
"I think the market is pricing in the Fed staying on hold for a while," said Eric Thorne, portfolio manager at Bryn Mawr Trust Wealth Management. "The expectation was the market would sell off at the open and that didn't happen. That just showed investors overall think the Fed is going to stay put for now."
Mergers activity remains robust with InterContinental Exchange announcing this morning it proposed a $9.9 billion acquisition of CBOT Holdings , an offer that ICE says is a 10.5% premium to the Chicago Board of Trade's current merger deal with the Chicago Mercantile Exchange. The unsolicited offer was first reported by CNBC's David Faber, then subsequently confirmed by ICE.
Cisco Systems said it has agreed to acquire web conferencing company WebEx Communications for about $3.2 billion in cash. Cisco said it will pay $57 a share for the company in a deal long anticipated for WebEX .
Shares of drugstore chain CVS closed higher after shareholders approved the company's $23.9 billion plan to acquire Caremark Rx . The deal still requires the blessing of Caremark shareholders, a vote is set for March 16.
Materials shares got a boost after reports that Dow Chemical is set to form a joint venture with India's top petrochemicals maker, Reliance Industries.
Shares of beaten-down subprime lenders such as Accredited Home Lenders continued their recent pop as some investors are betting that fears regarding subprime mortgage lending are overblown.
Bear Stearns reported a quarterly profit of $3.82 a share, two pennies above analysts' estimates, according to Thomson Financial. Earnings rose from $3.54 a share reported in the same quarter last year.
New York light crude futures closed below $58 a barrel on the New York Mercantile Exchange, its fifth decline in the last six sessions.
This morning, the Philadelphia Federal Reserve said business activity index dropped to 0.2 in March from 0.6 in February. Economists were expecting the index to rise to 4.0.
Treasury prices sold off slightly, sending yields higher.
Europe Finishes Strong, Asian Markets Bounce
The FTSE-100 rose 1.7% in London as shares of Cadbury Schweppes gained after it said it will split its candy and soft drinks businesses in an attempt to unlock value for shareholders.
Germany's DAX gained more than 2%. Drugmaker Bayer said fourth-quarter operating earnings rose 12.5%, helped by a strong healthcare unit and the acquisition of rival Schering AG.
In France, retailer Casino reported a 7.9% rise in its operating profit over 2006, largely thanks to acquisitions, and forecast further growth in operating income this year. The group plans to reinvest in some of its stores. The CAC-40 closed firmly in the green.
Japan's Nikkei 225 Average closed up more than 1%, led by exporters such as Canon, as concerns about their earnings receded following a recovery in U.S. stocks and the yen's retreat against the dollar. Investors also bid up shares of steel firms such as Nippon Steel.
In South Korea, the Kospi Index rose 1.4%, led by hard-hit exporters such as LG.Philips LCD, as worries over the U.S. housing market eased following gains on Wall Street.
Hong Kong blue chips rebounded, led by China Mobile, a day after global equity markets plummeted on concerns that troubled mortgage lenders in the U.S. could contaminate the broader economy.