Stocks finish higher; analysts think most bad news already priced into market

NEW YORK -- Wall Street withstood another stream of bad economic readings Wednesday, closing sharply higher as investors shuttled between pessimism about the recession and hopes that the nation might start seeing relief soon. The major indexes saw big swings throughout the day, but all closed up more than 2 percent, 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 beige book report 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 Labor Department reported that productivity growth slowed in the third quarter.

The market has now closed higher 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.

Still, stocks are expected to see more volatility as the week progresses, especially with November retail sales figures being released Thursday and the government's employment report due to come out Friday. 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.

According to preliminary calculations, the Dow rose 172.60, or 2.05 percent, to 8,591.69. The blue chip index has gained more than 442 points in the past two session, 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 percent, to 870.74, while the Nasdaq composite index rose 42.58, or 2.94 percent, to 1,492.38.

The Russell 2000 index of smaller companies rose 11.94, or 2.70 percent, to 453.76.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 1.3 billion shares.

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 this week that investors are confronted with. Of particular concern is the nation's unemployment rate, which soared to a 14-year high of 6.5 percent 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 percent when the Labor Department reports figures Friday, according to economists surveyed by Thomson Reuters.

Among the news Wednesday, the Institute for Supply Management said its services sector index fell to 37.3 in November from 44.4 in October. The reading, which followed a discouraging report on the manufacturing sector earlier this week, was significantly lower than the 42 the market expected.

Meanwhile, the Labor Department reported that productivity rose at an annual rate of 1.3 percent in the July-September quarter. That's down from the 3.6 percent growth rate in the second quarter, but slightly higher than the 1.1 percent initially reported a month ago and better than the 0.9 percent rise economists expected.

Ahead of retailers' November sales reports Thursday, there was some sign of relief about a stronger-than-expected bump in online sales Monday.

Internet research company comScore Inc. said Wednesday that online sales spiked 15 percent to $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. $4.02, or 9.8 percent, to $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.

Bond prices rose Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.67 percent from 2.70 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.01 percent from 0.05 percent late Tuesday.

The dollar was mixed against other major currencies. Gold prices fell.

Light, sweet crude oil rose 17 cents to settle at $46.79 a barrel on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average rose 1.79 percent. In afternoon trading, Britain's FTSE 100 was up 1.14 percent, Germany's DAX index was up 0.78 percent, and France's CAC-40 was up 0.44 percent.