Stocks bounce back from an early slump; Dow headed for its first gain in five days

By Stephen Bernard, AP
Wednesday, August 25, 2010

Stocks recover following weak home sales report

NEW YORK — It was shaping up to be another crummy day on the stock market Wednesday until investors decided to start looking for beaten-down shares after four straight days of declines.

The Dow Jones industrial average fell as much as 102 points in the first hour of trading after the latest batch of weak reports renewed fears that the economy was slowing down. Sales of new homes fell to their lowest pace on record in July, and durable goods orders were also weak.

But after four straight days of avoiding risk, traders began edging out of safe assets like Treasurys and back into stocks. The Dow ended with a gain of 19.61 points, or 0.2 percent, at 10,060.06.

The back-and-forth trading pattern has been typical of the volatility seen on the market in recent weeks, which has been exacerbated by very low trading volumes as investors take summer vacations.

“We rally, we sell off. We rally, we sell off,” said Sandy Mehta, principal and chief investment officer of Value Investment Principals. “It’s just the nature of the market right now.”

Broader market barometers also rose. The Standard & Poor’s 500 rose 3.46, or 0.3 percent, to 1,055.33, while the Nasdaq rose 17.78, or 0.8 percent, to 2,141.54.

About three stocks rose for every two that fell on the New York Stock Exchange, where consolidated volume came to a relatively low 4.4 billion shares, versus 4.5 billion shares the day before.

Interest rates initially fell in the bond market following the disappointing economic data, but rose steadily throughout much of the day as traders exited some of their Treasury positions and became more willing to pick up riskier assets.

Oil prices also rose, in another sign that traders are less concerned about finding safe assets. Crude rose more than $1 off its low for the day to settle at $72.52 a barrel.

The yield on the 10-year Treasury note fell as low as 2.42 percent during morning trading before climbing back to 2.54 percent. That yield helps set interest rates on mortgages and other consumer loans.

Overseas, Japanese shares fell again after the yen hit a new 15-year high against the dollar and a nine-year high against the euro. The high yen hurts profitability at major Japanese exporters. Japan’s Nikkei stock average fell 1.7 percent. European markets were also lower.

will not be displayed