Stock market bouncing back day after biggest drop of the year

The stock market rebounded somewhat Friday morning after news that the German parliament approved that country's portion of a large European bailout.

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    Trader Anthony Pugliese, right, works on his handheld device on the floor of the New York Stock Exchange Friday, May 21, 2010. The stock market has rebounded Friday after Thursday's big losses.
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Stocks turned higher a day after posting their biggest drops in more than a year.

Trading has been volatile Friday and there are still worries about how Europe is handling its debt crisis. Analysts said a bounce back after the slide Thursday wasn't surprising.

The Dow Jones industrial average rose about 50 points in early afternoon trading after falling below 10,000 in morning trading.

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The volatility comes after major indexes entered "correction" mode, having dropped more than 10 percent from their 2010 highs set last month.

Investors again looked to Europe for direction. The German parliament approved the country's share of a $1 trillion plan to help contain debt problems in the European Union. Major stock indexes in Europe were mixed but pulled well off their lows. Traders have been worried that stronger countries like Germany and France will be saddled with heavy debts to help weaker EU countries.

The euro rose to $1.2543 from $1.2464. The 16-nation currency has been a big driver of trading for weeks but many traders have been skeptical that any advances will be short-lived.

World markets have been falling on concerns that European debt problems will slow or maybe even stop a global rebound. The fear is that huge deficits in countries including Greece and Portugal will cause a wave of bad debt to race through the world's financial system. Even if that is prevented, the prospect of heavier borrowing and sluggish growth has traders concerned.

It's impossible to know whether the market is in for more than a correction but analysts say that the fear hasn't turned to panic like it did during the market's slide in late 2008 and early 2009.

"The likelihood of a double dip here is, I think, being really exaggerated," said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank in New York, referring to the prospect of another recession.

Schweitzer also expects the market will stabilize.

"It's a very tough call to make, but I come down on the side that it's more likely to be a correction," he said.

In early afternoon trading, the Dow rose 49.20, or 0.5 percent, to 10,117.59. The broader Standard & Poor's 500 index rose 8.64, or 0.8 percent, to 1,080.23. The Nasdaq composite index rose 18.19, or 0.8 percent, to 2,222.20.

The Dow had last fallen below 10,000 on May 6 when it lost nearly 1,000 points in an afternoon rout that was the biggest ever intraday slide. Regulators have said they are still unclear on what caused the brief drop.

The Dow tumbled 376 points Thursday. The Dow and the S&P 500 index fell more than 3 percent, while the Nasdaq lost 4.1 percent. The drop has erased the gains major indexes had made in 2010.

Bond prices were mixed after surging Thursday when investors dumped anything seen as risky, including stocks and commodities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.19 percent from 3.22 percent late Thursday.

Crude oil dropped 96 cents to $69.84 per barrel on the New York Mercantile Exchange.

The Chicago Board Options Exchange's Volatility Index fell 11 percent. The VIX, which is known as the market's fear gauge, closed Thursday at its highest level since March 2009. The jump signaled that traders were bracing for more drops in the market.

Even with the drop of 12 percent from its 2010 high, the S&P 500 index is still up 58 percent from the March 2009 bottom and is down 31.5 percent from its record close of 1,565 in October 2007.

Corrections can be scary but they can be good for markets. Analysts say major stock indexes had become overheated in their climb from a 12-year low in March 2009. Corrections also aren't unusual. Drops of 10 percent occur in most years and don't necessarily that stocks will keep sliding.

"We don't think there is any predictability that just because we've had a 10 percent correction now that suddenly we're in for another 10 percent drop," said Bill Urban, principal with Bingham, Osborn & Scarborough, based in San Francisco.

Financial stocks also drew attention. The Senate late Thursday approved its version of a financial overhaul bill that contains the biggest regulatory changes for banks since the 1930s. The bill will now be reconciled with a version that passed the House.

Goldman Sachs Group Inc. rose $4.80, or 3.5 percent, to $140.90, while Wells Fargo & Co. rose $1, or 3.5 percent, to $29.69.

The Treasury Department said after the slide in world markets Thursday that Treasury Secretary Timothy Geithner would head to Europe next week to meet with finance officials in Britain and Germany on how to boost confidence in the financial system.

Britain's FTSE 100 fell 0.9 percent and briefly dropped below the psychological threshold of 5,000. Germany's DAX index slid 1.6 percent, and France's CAC-40 fell 0.7 percent. Earlier, Japan's Nikkei stock average fell 2.5 percent.

In corporate news, Dell Inc. reported after the closing bell Thursday that its first-quarter net income increased but the company's gross profit margin fell from a year earlier. The stock fell 83 cents, or 5.8 percent, to $13.49.

Gap Inc. reported a 40 percent increase in first-quarter net income. The company boosted its profit forecast for the year but the outlook fell short of analysts' forecasts. Gap rose 48 cents, or 2.2 percent, to $22.22.

Related:

Wall Street crashes amid market 'temper tantrum over Europe'

SEC unveils 'flash crash' fixes, but Dow plunge still mysterious

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