NEW YORK - A still skittish Wall Street tried to stage a comeback Thursday, with the Dow Jones industrials erasing much of a 209-point drop after an upbeat assessment of manufacturing activity eased some worries about a flagging U.S. economy.
Investors showed their relief about manufacturing by buying some of the stocks that were pummeled in Tuesday's drop that sliced 416 points off the Dow. Fears about the U.S. economy contributed to that plunge, and a halfhearted rebound on Wednesday followed soothing words from Federal Reserve Chairman Ben Bernanke.
The Institute for Supply Management's index of manufacturing activity came in at 52.3, stronger than the 50.0 reading analysts expected. The index is an important measure of a part of the economy that has given investors headaches in recent months. Manufacturing has struggled and at times given off signals that a recession might be in the offing. A reading at 50 and above indicates expansion, while anything below 50 signals contraction.
The ISM data showing manufacturing expansion helped the market bounce back from earlier lows, said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.
Nervousness still plagued the Street, however, and the indexes bounced around choppily as many investors bailed out of equities and fled to safe havens like Treasurys, fearing that stocks could see a bigger correction.
"The aftermath of Tuesday's major selloff will linger for the next couple of days. I don't think we're totally out of the woods yet," Cardillo said.
In late morning trading, the Dow Jones industrial average was down 11.77, or 0.10 percent, at 12,256.86.
Broader stock indicators also fell. The Standard & Poor's 500 index was down 1.56, or 0.11 percent, at 1,405.2661, and the technology-dominated Nasdaq composite index was down 6.87, or 0.28 percent, at 2,409.28.
Bond prices rose as stocks fell, with the yield on the benchmark 10-year Treasury note falling to 4.56 percent from 4.57 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.
"I don't expect the market to go much lower than these levels, but we can expect a few more days of nervousness," Cardillo said.
Stocks began their plunge on Tuesday amid growing worries that the U.S. and Chinese economies are slowing, then recovered slightly on Wednesday as Bernanke predicted the U.S. economy would continue to grow moderately.
The market appears to be in a pattern set during past big downturns, dropping sharply one day, regaining some ground the next and then resuming its slide as investors were unable to recoup their lost confidence in stocks.
U.S. investors began the day rattled by another series of declines in Asian and European markets.
"It's kind of the tail wagging the dog today. There's no stability in Asian markets, and no stability in European markets. We're trading the market as the rest of the globe is," said Arthur Hogan, chief market analyst at Jefferies & Co.
But he added, "As far as data goes, there's more good news than bad news."
On Wednesday, the Commerce Department said personal incomes rose in January at the fastest pace in a year, fueled in part by executive bonuses and pay hikes for federal workers. Personal incomes rose by 1 percent in January while consumer spending was up by 0.5 percent. The income advance was the largest since January 2006. A confident consumer willing to spend is integral to ushering the economy to the gradual slowdown Wall Street has been hoping for.
The report also showed inflation excluding sometimes volatile energy and food prices rose 0.3 percent in January, the largest one-month gain since August. But the gauge that leaves in energy and food rose by only 0.2 percent, has moderated to 2 percent year-over-year - at the top of the Fed's 1 percent to 2 percent target.
"It's slipped back into their comfort zone. It takes the Fed tightening question right off the table," Hogan said.
Not all the economic snapshots Thursday were upbeat: Construction activity fell by 0.8 percent in January, double the decline that analysts had been expecting, and the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits rose by 7,000 last week to 338,000. Economists had been expecting a decline in claims.
But taken together, the data over the past week still paints a picture of moderating economic growth and cooling inflation - technically, an ideal long-term situation for stocks.
"The fear of recession is overblown. I don't think we're headed for recession in 2007," Cardillo said.
In corporate news, database and software maker Oracle Corp. rose 49 cents, or 2.9 percent, to $16.91 after agreeing to acquire Hyperion Solutions Corp. for $52 per share in cash, or $3.3 billion. Hyperion surged $8.70, or 20 percent, to $51.54.
Sears Holding Corp., which controls Sears department stores and Kmart discount stores, reported a better-than-expected increase in its fiscal fourth-quarter profit as margins improved despite weaker sales at established stores. Sears was off $4.93, or 2.7 percent at $175.39.
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 733.3 million shares.
The Russell 2000 index of smaller companies was down 3.02, or 0.38 percent, at 790.28.
Overseas, Japan's Nikkei stock fell 0.86 percent. In afternoon trading, Britain's FTSE 100 was down 1.09 percent, Germany's DAX index was down 1.54 percent, and France's CAC-40 was down 1.68 percent.
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