Stocks recover after 2-day slump
The Dow rose 178 points to close at 11836 as international leaders worked to prevent a European financial crisis.
New York — Stock indexes closed with broad gains Wednesday as international leaders scramble to save a week-old plan to prevent a financial crisis in Europe. Strong corporate earnings and a bump up in hiring by private companies also helped send markets higher after a steep two-day drop.
The Dow Jones industrial average gained 178.08 points, or 1.5 percent, to close at 11,836.04. The Dow lost 573 points the previous two days after the brokerage MF Global collapsed and Greece's prime minister surprised markets and his own government with a call to put unpopular austerity measures to a public vote.
"It's crazy how much the markets dropped in two days, considering that the data of the U.S. economy has actually looked pretty good," said Barry Knapp, head of equity strategy at Barclay's Capital. "It just shows you how fragile the investor psychology is with Greece hanging over everything."
For much of the summer, investors were worried that the U.S. economy was on the verge of another recession. But signs that consumers are continuing to spend and that manufacturing expanded in September have put many of those concerns to rest.
The Federal Reserve said Wednesday the economy was likely to expand modestly over the next two years. But Fed Chairman Ben Bernanke cautioned that the pace of economic growth will likely be "frustratingly slow." The Fed said it would not take any more steps to help the economy for now, but it left open the possibility of more steps later.
The fear of a wider financial crisis eased somewhat as the euro rose against the dollar and Treasury prices slipped. A revolt in George Papandreou's government could scuttle the Greek referendum. That would bring relief to investors by keeping the bailout plan intact. Papandreou faces a confidence vote on Friday.
Should voters reject the austerity plan, it could lead to a messy default on Greece's debt that would send shock waves through Europe's financial system and likely cause massive losses for banks that hold Greek bonds. Only last week European leaders agreed to a wide-ranging plan to shore up European banks and heavily indebted countries like Greece and Italy.
Papandreou traveled to France Wednesday and is scheduled to meet with leaders of the Group of 20 nations Thursday and Friday. France and Germany are expected to insist that a bailout plan reached last Thursday is the best way to solve Europe's debt problems and avoid a financial crisis.
In the U.S., an increase in hiring by private companies helped lift stock prices. Automatic Data Processing said company payrolls rose by 110,000 in October, more than economists had expected. Most of the gains came from the service industry. ADP also revised its survey results for September higher. Investors see ADP's report as a precursor to the government's broader employment report, which is due out Friday.
Bank of America rose 5 percent, the largest gain among the 30 stocks in the Dow. MasterCard gained 7 percent after reporting that its quarterly earnings soared 38 percent. The results beat analysts' expectations. Intel Corp. was the only Dow stock to drop, losing 0.2 percent.
The Standard and Poor's 500 rose 19.62 points, or 1.6 percent, to 1,237.90. The Nasdaq composite gained 33.02, or 1.3 percent, to 2,639.98.
Small stocks rose more than the overall market, a sign that investors were taking on more risk. The Russell 2000 index added 2.7 percent.
The yield on the 10-year Treasury note rose to 1.99 percent, up from 1.96 percent late Tuesday.
Among companies reporting quarterly earnings, EOG Resources Inc. rose 11.8 percent. The oil and gas company reported third-quarter earnings that beat analysts' expectations after posting a loss a year ago. JDS Uniphase Corp. jumped 8.5 percent after the technology company's earnings surpassed estimates.