Stocks climb back from lows to end higher

By Abby Schultz, Special to CNBC.com

Stocks climbed back from the lows of the year as investors shrugged off continuing uncertainty in Japan to send stocks broadly higher.

The Dow Jones Industrial Average gained 161.29 points, or 1.4 percent, to close at 11,774.59 after falling 242 points on Wednesday as traders whipsawed the blue-chip index with every news development in Japan's nuclear crisis.The Dow has risen 1.7 percent for the year.

Among Dow components, Hewlett-Packard, Pfizer and Verizon gained, while Kraft fell.

The S&P 500 rose 16.84 points, or 1.34 percent, to close at 1,273.72, now up 1.28 percent for the year. The Nasdaq rose 19.23 points, or 0.7 percent, to close at 2,636.05, still leaving the tech-heavy index slightly in the red for 2011.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, sank nearly 9 percent to below 27. On Wednesday, the VIX skyrocketed more than 20 percent to above 29, as investors tried to gauge the implications of the crisis at the Fukushima Daiichi power plant in Japan.

All key S&P 500 sectors rose, led by energy, telecom and materials.

"Clearly the sell off we’ve had through the early part of this week was more of an emotional selloff," said Randy Frederick, director of trading and derivatives for Charles Schwab. "I still think in the long-term there’s reason to be optimistic."

The market dive this week is where the "experienced investors get separated from the ones who aren't," Frederick said, as experienced investors knew there was no fundamental reason for the sharp decline. It was "one of the best buying opportunities we've had in some time," he said.

The spike in the VIX, a measure of the market's uncertainty, is a temporary reaction to unfolding news event, and is likely to settle somewhere between 18 and 20, he added. Unless events in Japan turn even worse, "I can’t see it being up there for long," Frederick said.

Despite the market's rise, Scott Redler, chief strategic officer at t3live.com, said the "market still lacks a punch and potency," noting that stocks only regained a small portion of what they've lost in the last week or so.

Thursday's bounce even extended to stocks of Japanese companies, which have tumbled since news of the earthquake broke last Friday. The iShares MSCI Japan Index fund, for instance, gained more than 5 percent.

The yen continued to be in focus after surging to a new record high against the dollar in late afternoon trading Wednesday, although Japan dismissed the need for G7 action to put the brakes on the yen's rise. A strong yen may make it difficult for Japan to recover from the triple disasters of earthquake, tsunami and nuclear disaster. The dollar, meanwhile, fell slightly against a basket of currencies, while the price of gold strengthened to close at $1,404 an ounce.

Developments in Bahrain and Libya kept oil in the spotlight Thursday. Bahrain arrested at least six hardline opposition leaders, a day after its crackdown on protests by the Shi'ite Muslim majority drew U.S. criticism and raised fears of a regional conflict.

In Libya, government troops pushed toward Benghazi amid a push to launch air raids against Muammar Gaddafi's forces.

Oil prices, meanwhile, began soaring again, rising more than 2 percent. London Brent crude rose above $114 a barrel, whileU.S. light sweet crude rose above $101 a barrel. Also, the government reported Tuesday that crude oil inventories in the U.S. rose to 1.75 million barrels, while gasoline inventories fell by 4.2 million barrels.

Banks gained after news the Federal Reserve will tell some institutions that they passed recent stress tests and can beginning raising dividends again, according to the Wall Street Journal. The banks can announce dividend increases as early as Friday, the Journal said.

Bank of America, JPMorgan and Wells Fargo rose.

Energy stocks led the market higher, led by oil producers and servicers, as the prices of oil settled back above $100 a barrel. Schlumberger, Noble Energy and Conoco Phillips were among the leaders.

The market also faced quadruple witching on Friday, a day in which contracts on stock index futures, stock index options, stock equity options, and single stock futures expire. This happens once every quarter, on the third Friday of March, June, September and December. Volatility is common in the market in the week before quadruple witching as trades are settled, although geopolitical events played a bigger role this week.

Options volume also tends to be high in the two days before the contracts settle. That was certainly true this week. According to Frederick at Schwab, 28 million option contracts traded on Wednesday, compared with an average of 17-18 million in a normal week, and 22-24 million during a quadruple witching week.

General Mills fell more than 1 percent after reports the packaged food maker would buy PAI's stake in Yoplait.

Federal Express jumped after reporting earnings that fell slightly shy of expectations, but provided a forecast that was better-than-expected. Rival UPS also gained.

Lululemon, however, sank despite reporting sales that beat expectations, as traders focused on the yoga and athletic apparel maker's ability to meet future demand. Guess fared even worse, plunging more than 10 percent, after delivering a weak outlook for earnings this year.

Nike will release earnings after the close.

Shares of General Electric on Thursday recovered some of the losses sustained since the close of trading a week ago, before the earthquake and tsunami hit Japan. The nuclear reactors in the crippled Japanese plant were made by GE and Hitachi. GE's nuclear sales account for 3 percent of revenue, according to Citigroup research.

Among tech stocks, Apple got a lift from Credit Suisse, which started to cover the iPad maker with an "outperform" rating. Apple's shares slid Wednesday after a downgrade by JMP Securities based on "deceleration" in sales among a key Apple manufacturing partner, Hon Hai.

Volume on the consolidated New York Stock Exchange was 4.1 billion shares, while 1 billion changed hands on the NYSE floor.

In U.S. economic news, initial claims for unemployment benefits dropped 16,000 last week, giving an additional lift to the market. The four-week average for claims dropped to 386,250, the lowest level since July 2008, according to the Labor Department.

Meanwhile, U.S. consumer prices gained 0.5 percent in February, up from a 0.4 percent rise in January, the Labor Department said. That's the largest gain for the CPI since June 2009. Core CPI, which excludes volatile food and energy prices, rose 0.2 percent in February, the same pace as January.

Industrial production fell 0.1 percent, more than expected, as a result of drops in gas and electricity utility production due to unseasonably warm weather, the Federal Reserve said.

The Philadelphia Fed Survey's index of manufacturing rose to 43.4 in March from 35.9 percent in February, the highest reading since January 1984. The new orders index rose 17 points, the sixth consecutive monthly rise.

Also, the index of leading economic indicators rose 0.8 in February, up from 0.1 in January, the Conference Board reported.

And in Europe, the Swiss National Bank kept interest rates on hold Thursday despite an overall improved outlook for the economy, citing risks from Europe's debt crisis and the nuclear disaster in Japan. European shares rebounded from three-month lows, reportedly on buying by hedge funds.