Dow surges more than 340 points Tuesday due to bargain hunting

NEW YORK -- The stock market turned the calendar from its darkest quarter in 15 years and lurched higher Tuesday, lifting the Dow Jones industrials by more than 340 points as bargain hunters at least temporarily set aside concerns about the economy.

But analysts said the advance -- the Dow's biggest in two months and its seventh straight triple-digit move -- did not mean that Wall Street had resumed an upward track. Analysts said there was no conviction behind the gain; it was merely a reaction to the market's recent sharp drop.

"It is just a very oversold market in the short term," said Arthur Hogan, chief market analyst at Jefferies & Co.

Analysts also cautioned that the market was highly vulnerable to the next batch of news that says the economy remains fragile.

"When we post a rally like this, no one wants to get in the way, because we have been selling stocks for three years. After one of these selloffs, everyone hopes and prays it is the bottom. So that is why we get these exaggerated moves," Hogan said. "But the fundamental macroeconomic problems are still going to be there when we wake up."

The Dow had its eighth-biggest one-day point gain ever, rising 346.86, or 4.6 percent, to 7,938.79. The gain offset much of the Dow's 406-point loss over the previous two sessions. It was also the Dow's biggest one-day point gain since July 29, when it rose 447.49.

The broader market also soared. The Nasdaq composite index rose 41.66, or 3.6 percent, to 1,213.72. The Standard & Poor's 500 index advanced 32.63, or 4 percent, to 847.91.

Nothing has changed

But nothing has changed "but the month on the calendar," said Hogan, referring to the start of October and of the fourth quarter. The market was rebounding from a horrible third quarter in which the Dow and S&P each tumbled nearly 18 percent and the Nasdaq fell almost 20 percent. It was the worst quarter for the S&P since 1987 and it was the Dow's worst month of September since 1937.

Even Tuesday's buying had a bearish nature, as it involved short covering. In short covering, investors who sold shares on expectations the market will keep dropping are forced to buy stock to adjust their positions when the market advances.

"Bargain hunters stepped into a deeply oversold market where valuations have run down to levels that momentarily seem attractive, and shorts scrambled," said Alan Ackerman, executive vice president at Fahnestock & Co.

Depressed prices after Wall Street's latest drop began drawing buyers Tuesday even as the market digested a report by the Institute of Supply Management that manufacturing activity contracted in September after seven straight months of growth.

The decline in the group's index of business activity to a reading of 49.5 is significant because any figure below 50 shows contraction.

Stocks were rising before the report's release and while they faltered somewhat afterward, analysts said rumors about the index had circulated before trading began and therefore it was not viewed as negatively as might be expected.

Also Tuesday, the Commerce Department reported that construction spending dropped 0.4 percent in August. The dropoff, chiefly because of cutbacks in private builders' projects including offices, industrial complexes and hotels, met analysts' expectations and followed a 0.1 percent decrease in July.

Analysts said the fact that stocks were able to advance after the release of the reports shows that investors were assessing them without alarm, and interpreting them to mean the economy is at least not weakening.

The reports "are not bad. They're just saying we're treading water, and I don't think that surprised anybody," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc. in St. Louis.