Stocks staged a strong comeback Thursday as investors set aside fears of recession to celebrate a drop in oil prices.
The Dow Jones industrial average closed up 401.35 points, or 4.7 percent, at 8979.26, after recovering from a decline of more than 300 points early in the day. It was the Dow’s 10th-biggest point gain ever; six of the top 10 have come this year.
The broader Standard & Poor’s 500 index gained 38.59 points, or 4.3 percent, to close at 946.43. And the technology-heavy Nasdaq composite index rallied 89.38 points, or 5.5 percent, to 1717.71.
It was only the third time in the last 14 trading sessions that the Dow has finished in positive territory.
Analysts credited the rally in part to oil’s first close below $70 since August 2007. Lower crude prices can provide a boost to consumer spending, which accounts for about two-thirds of U.S. economic activity.
“Having oil prices come down like this is like a tax cut for consumers,” said Allan Rudnick, chairman emeritus of Kayne Anderson Rudnick Investment Management in Los Angeles.
But Rudnick noted that a great amount of uncertainty still surrounds the health of the U.S. economy and the effectiveness of worldwide efforts to solve the global credit crisis. Although credit markets continued to show small signs of improvement Thursday, he said the financial system isn’t out of the woods.
“We’ve got a ways to go before the markets feel comfortable that banks are back in a real lending mode,” he said. “It’s not going to happen overnight.”
In early trading, the Dow and the S&P fell below last week’s closing lows — 8451.19 for the Dow and 899.22 for the S&P 500 — which some analysts had feared could spark a renewed round of selling. Instead, after fluctuating through most of the day, stocks rallied strongly as the closing bell neared, in contrast to the recent trend of sharp sell-offs in the last hour of trading.
Thursday’s early losses, which momentarily wiped out what remained of Monday’s 936-point Dow gain, came as investors continued to fret that the economy was headed for a deep recession.
Investors are nervous after the market plunged Wednesday on a stream of bad economic news that underscored the likelihood that the country is either in a recession or will be in one, and that the downturn will be severe.
Investors found little reassurance in comments Thursday by U.S. Treasury Secretary Henry Paulson about the financial crisis’ toll on the economy.
“We’re going to have a number of tough months here,” Paulson said in an interview with Bloomberg Television.
Although credit markets were showing some improvement Thursday, they were still shaky. The three-month Treasury bill, which has seen its rate drop to rock bottom as investors hoarded cash, was yielding 0.39 percent, up from 0.2 percent on Wednesday.
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