NEW YORK, October 17 – Wall Street shook off a global market rout Thursday in a powerful late rally as falling oil prices and easing credit markets helped soothe jitters a day after brutal losses for global stocks.
The Dow Jones Industrial Average vaulted 401.35 points (4.68 percent) to close at 8,979.26 in a session that saw an 800-point swing for the blue-chip index.
The sharp rebound from Wednesday\’s selloff lifted the Nasdaq composite 89.38 points (5.49 percent) to 1,717.71 and the broad Standard & Poor\’s 500 index 38.59 points (4.25 percent) to 946.43.
The market opened with steep losses amid weak US economic data and fresh turmoil in global markets including an 11 percent plunge in Tokyo\’s main index. But the indexes started creeping back in late morning and the gains accelerated late in the day.
"A sharp drop in oil prices may be lifting the market\’s mood," said Al Goldman at Wachovia Securities.
"The market also welcomed another drop in money market rates this morning."
Goldman said the market wobbled but was able to shrug off a recession-like reading on US industrial production in September, which fell 2.8 percent, and a sharp drop in a regional factory index from the Philadelphia Federal Reserve.
In a positive for equities, oil prices skidded again, with New York crude settling below 70 dollars a barrel for the first time since August 2007.
More evidence of a thaw in credit markets also appeared, prompting investors to swoop in for bargains after Wednesday\’s global rout.
Nathan Topper at Economy.com said there were signs of improvements in the credit markets that could eventually ease the financial turmoil, reflected in so-called credit spreads and the Libor interbank lending rate.
"Debt markets are showing signs of better health: Treasury yields are up and Libor is down," he said.
The market action came after Wednesday\’s panic selloff and further declines in world markets including.
The Dow posted a 733-point drop on Wednesday, the worst one-day point loss for the blue-chip index since last month\’s record 777-point decline and the steepest percentage drop since 1987.
Gregory Drahuschak, an analyst with the brokerage Janney Montgomery Scott, said some of the heavy selling Wednesday and early Thursday was "forced liquidations" by hedge funds and other portfolio managers as clients pull out cash.
This type of panic selling is "unnerving," he said, but will eventually be exhausted.
"At some point forced selling will slow and eventually disappear," he said.
"The fact that this selling is happening now suggests that once we get beyond the end of October, the artificial selling could slow notably, which would lift a heavy weight off the market."
European exchanges fell hard shortly after the start of trade on Wall Street, where gloom deepened on news that the current banking and credit crisis had taken a sharp bite out of the manufacturing sector.
The Federal Reserve said US industrial production plunged 2.8 percent in September, the steepest decline since 1974.
"Today\’s industrial production report was one of the worst ever," said Aaron Smith at Economy.com.
A separate report by the Philadelphia Federal Reserve on factory activity in the mid-Atlantic eastern region also showed extremely weak conditions. The index plunged 41 points — its biggest drop ever — to minus 37.5, the worst level since 1990.
John Ryding at RDQ Economics said the horrific conditions in the manufacturing sector reflected the problems with credit and weak consumer spending.
"In our opinion, economic activity deteriorated sharply later in the third quarter and into the fourth quarter, probably reflecting tightening credit conditions and a significant slowing in global markets."
"Recession is on its way," said Carl Weinberg, chief economist at High Frequency Economics.
"The seeds of recession germinated during the (credit) crisis and the likelihood is that most of the world — although not China — will be in recession long after the uncertainty about the world\’s banking sector has dissipated."
Two key interbank lending rates, Libor and Euribor, eased further on despite sharp losses on world stock markets, an indication that banks were becoming less reluctant to lend to each other.
In Europe Thursday, the London FTSE 100 index fell 5.35 percent, while in Paris the CAC 40 lost 5.92 percent and Frankfurt\’s Dax shed 4.91 percent.
Both of Russia\’s main stock markets dropped more than nine percent on Thursday after steep falls in the United States and Asia added to investor concerns about plunging oil prices.
Thursday\’s rout began in Asia, where the Tokyo exchange gave up 11.4 percent, its worst showing in more than two decades.
Hong Kong lost 4.8 percent, Seoul sank 9.4 percent, Mumbai shed 2.11 percent and Sydney tumbled 6.7 percent.
Brazil\’s Ibovespa pared steep falls to close 1.06 percent lower, while Mexico\’s bourse shed 3.21 percent.