Wall Street posts modest comeback

Wall Street staged a comeback Wednesday, but the rebound lacked the conviction that some stock market bulls hoped to see.

That left many analysts warning of more selling ahead if the U.S. economy shows signs of a deeper slowdown.

The Dow Jones industrial average finished up 52.39 points, or 0.4%, at 12,268.63. That recouped about one-eighth of the index’s loss Tuesday, when it plummeted 416 points, or 3.3%, amid a surge in economic worries.

The broader market was higher, but most key indexes also made up only a fraction of their losses in the previous session.

Dan McMahon, a stock trader at CIBC World Markets in New York, said he expected more action Wednesday -- up or down -- than what occurred.

“You got the feeling that people are trying to figure out what to do next,” he said.

Others said that even the modest uptick was a good sign given the severity of the selling Tuesday, when blue-chip indexes suffered their biggest one-day declines in four years.

“Tuesday was panic,” said Art Hogan, chief market analyst at brokerage Jefferies & Co. in New York. On Wednesday, he said, “We had stabilization.”

He also noted that major Asian and European markets continued to fall Wednesday. “Compared to them, we had a great day,” he said.

Still, the Dow faded after being up as much as 137 points early in the session, when the market got a boost from upbeat comments from Federal Reserve Chairman Ben S. Bernanke.

The blue-chip index’s biggest winners for the day were companies that tend to do well even in weak economies -- for example, household-products giant Procter & Gamble, which jumped $2.24 to $63.49.

Global stock markets have been flying high for the last seven months, underpinned by faith that the U.S. economy was in the midst of a “soft landing” -- a slowdown in growth that would give way to stronger growth in 2008 and beyond.

But some recent weak U.S. economic reports have cast doubt on the soft-landing scenario. Worries bubbled over Tuesday, after a steep decline in Chinese stock markets spooked global investors and after former Fed Chairman Alan Greenspan said the U.S. could tilt into recession late in the year.

There was more bad economic news Wednesday. The government said new-home sales plunged nearly 17% in January, and a report on Midwest-area manufacturing showed a second month of contraction in activity.

The data failed to spark another dive on Wall Street, but some investment advisors said many investors were just beginning to grapple with the possibility that a soft landing gives way to a full-blown recession.

Peter Boockvar, strategist at brokerage Miller Tabak & Co. in New York, said that weakness in the housing, manufacturing and auto sectors was slowly spilling into the broader economy.

Although the speed of Tuesday’s sell-off suggested the computerized programs were responsible -- in other words, that much of the selling was tied to short-term trading strategies, not to humans making decisions based on economic issues -- Boockvar doesn’t buy it.

“There were deep, fundamental reasons behind the sell-off,” he said.

A key number looms today: a report on manufacturing activity nationwide. Investors who are fearful that the soft-landing scenario is fading will be watching that figure closely, analysts said.

Analysts note that even if stocks fall further, the decline might just end up a typical “correction” in a continuing bull market. Last spring, for example, the Dow fell 8% in five weeks, also on economic worries. The market began to resurge by late July.

The market’s sudden weakness may only seem shocking because there have been so few broad pullbacks since 2003, some analysts say.

“We got used to having no volatility, and then it suddenly came back Tuesday,” said Jeffrey Kleintop, investment strategist at PNC Wealth Management in Philadelphia.

Among Wednesday’s market highlights:

* Winners topped losers by about 7 to 4 on the New York Stock Exchange, a turnaround from Tuesday when losers had a 6-to-1 lead.

Trading remained very heavy, but analysts said it was orderly, unlike the previous session’s at times chaotic activity.

* The Standard & Poor’s 500 index gained 7.78 points, or 0.6%, to 1,406.82. It had lost 3.5% in the previous day’s rout. The Nasdaq composite index added 8.27 points, or 0.3%, to 2,416.13. It had plummeted nearly 97 points, or 3.9%, on Tuesday.

* The Dow was helped by drug maker Merck, which rose 97 cents to $44.15 after raising its earnings forecast for the current quarter.

Another winner in the Dow was Philip Morris parent Altria, up $1.61 to $84.28. Like Procter & Gamble, Altria is viewed as a good holding in a weak economy.

* In the battered sub-prime mortgage sector, Santa Monica-based lender Fremont General plunged $2.84 to $8.81 after the company delayed releasing its fourth-quarter earnings without giving a reason.

* The Shanghai market bounced back 3.9% after diving 8.8% on Tuesday, when it led the global sell-off on concern that China’s government might act to restrain the red-hot market.

* Most European markets fell for a second day, but index losses were in the 1% to 2% range, compared with 2% to 3% on Tuesday.

* Treasury bond yields edged up after diving Tuesday, when some investors fled stocks for bonds. The 10-year T-note yield ended at 4.57%, up from 4.51%.

* Near-term crude oil futures edged up to a fresh 10-week high, gaining 33 cents to $61.79 a barrel in New York.

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Petruno reported from Los Angeles and Hamilton reported from New York.

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Day two

How much major stock markets around the world tumbled Tuesday, and their changes Wednesday.

*--* Pctg. chng.: Market/index Tues. Wed. China/Shanghai composite -8.8% +3.9% Brazil/Bovespa -6.6 +1.7 Mexico/IPC -5.8 +0.8 U.S./Dow 30 -3.3 +0.4 U.S./Nasdaq -3.9 +0.3 Germany/DAX -3.0 -1.5 Britain/FTSE -2.3 -1.8 Russia/RTS -3.3 -2.5 Japan/Nikkei 225 -0.5 -2.8 India/Sensex -1.2 -4.0

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Source: Bloomberg News