NEW YORK, Dec 4 — Wall Street withstood another stream of bad economic readings yesterday, closing sharply higher after investors shuttled between pessimism about the recession and hopes that the United States might start seeing relief soon. The major indexes saw big swings throughout the day, but all closed up more than 2 per cent, giving the market its second straight advance.
The day's downbeat news included a drop in productivity, a pullback in the services sector and the Federal Reserve's finding of worsening economic conditions across the country. Investors were initially disheartened by each piece of news but soon shook off their disappointment — until the next dismal report was issued.
Analysts largely believe that much of the bad news is already priced into the market, and they again said stocks remain in a bottoming process after the huge declines of the past two months.
"The market is beginning to look forward, and a lot of the selling pressure appears to be abating," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners. "Perhaps some of the hedge funds are becoming less aggressive in selling, and investors are starting to look at the future."
The Fed's report, known as the beige book, said the country's economic picture has deteriorated, with Americans hunkered down heading into the holidays. The report suggests the economy was sinking deeper into recession.
Earlier, the Institute for Supply Management, a trade group of purchasing executives, said the nation's services sector contracted dramatically in November as slower spending hurt insurers, retailers and hotels. And the Labour Department reported that productivity growth slowed in the third quarter.
The market, which also fluctuated sharply on Tuesday before closing higher, has now advanced in seven of the last eight sessions. The winning streak was broken only by Monday's big decline that took the Dow Jones industrials down nearly 680 points; even with that plunge, the blue chips still have an advance of nearly 1,040 over the eight-day stretch.
Still, stocks are expected to see more volatility as the week progresses, especially with November retail sales figures being released today and the government's employment report due tomorrow. Wall Street has been locked for months in a pattern of surging higher only to fall sharply on negative news about the economy and the financial services sector.
The Dow rose 172.60, or 2.05 per cent, to 8,591.69. The blue chip index has gained more than 442 points in the past two sessions, wiping out more than half of Monday's slide.
Broader indexes also closed higher. The Standard & Poor's 500 index rose 21.93, or 2.58 per cent, to 870.74, while the Nasdaq composite index rose 42.58, or 2.94 per cent, to 1,492.38.
The Russell 2000 index of smaller companies rose 11.94, or 2.70 per cent, to 453.76.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 6.01 billion shares, up from 5.79 billion on Tuesday.
While the market's recent advances are no doubt encouraging, analysts largely expect the turbulence to continue well into the future as Wall Street works to emerge from a bear market.
"I think these pops are not fundamentally driven," said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants. "I think it's wishful thinking. I don't see any sustainable up move in the equity markets."
And, there are certainly headwinds confronting investors this week. Of particular concern is the nation's unemployment rate, which soared to a 14-year high of 6.5 per cent in October as another 240,000 jobs were cut. For November, job losses are expected to climb to 320,000 and the unemployment rate is expected to hit 6.8 per cent when the Labour Department reports figures tomorrow, according to economists surveyed by Thomson Reuters.
Yesterday, the Institute for Supply Management said its services sector index fell to 37.3 in November from 44.4 in October. The reading was significantly lower than the 42 the market expected.
Meanwhile, the Labour Department reported that productivity rose at an annual rate of 1.3 per cent in the July-September quarter. That's down from the 3.6 per cent growth rate in the second quarter, but slightly higher than the 1.1 per cent initially reported a month ago and better than the 0.9 per cent rise economists expected.
Ahead of retailers' November sales reports today, there was some sign of relief about a stronger-than-expected bump in online sales on Monday.
Internet research company comScore Inc said yesterday that online sales spiked 15 per cent to US$846 million on "Cyber Monday," which was named by the National Retail Federation in 2005 to describe the surge in online spending when customers returned to work after Thanksgiving and shopped from their desks. That helped lift Amazon.com Inc. US$4.02, or 9.8 per cent, to US$45.21.
Still, analysts doubt that shopping binges over the weekend — the unofficial start to the crucial holiday shopping season — will have been enough to save a terrible November for retailers.
The dollar was mixed against other major currencies. Gold prices fell.
Light, sweet crude oil rose 17 cents to settle at US$46.79 a barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average rose 1.79 per cent. In afternoon trading, Britain's FTSE 100 was up 1.14 per cent, Germany's DAX index was up 0.78 per cent, and France's CAC-40 was up 0.44 per cent. — AP
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