Dow Swings Back, Closing Up About 400 Points

A day of unease and ambivalence in the stock market ended with a rush of euphoria on Thursday, as investors raced back into beaten-down shares of financial firms and bid up the Dow industrials to a 410-point gain.

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The late afternoon rally, which came in just the final hour of trading, nearly erased the 449-point loss sustained on Wednesday. But it was far from a beacon that it is all clear.

Fear and stress abounded in the credit markets, where investors flocked to the safety of Treasury bills and elevated lending rates among banks, a sign of widespread anxiety. Investors are still grappling with the full implications of the once-unthinkable developments that have rocked the world of finance in the last week.

Stocks gyrated in and out of positive territory for most of the day on Thursday, with the Dow swinging across a 617-point range.

“It’s one of the craziest things I’ve ever seen,” said Richard Sparks, an analyst at Schaeffer’s Investment Research.

At the closing bell, the Dow was higher by 410.03 points, finishing at 11,019.69. The broader Standard & Poor’s 500-stock index gained 4.3 percent.

Analysts attributed the rally to a batch of reports that arrived late in the day, suggesting that regulators were taking actions against short sellers — investors who bet that a stock’s price will drop — and that the government may be planning to quarantine some of the worst assets held by major banks. Some investors have blamed short-sellers for the precipitous drops in shares of big banks over the last few months.

The banking giant, Wachovia, jumped nearly 60 percent; Washington Mutual, the troubled thrift, gained 49 percent.

Shares of the last two independent investment banks, Morgan Stanley and Goldman Sachs, see-sawed throughout Thursday, a day after suffering steep losses as investors worried that they could face a similar fate as Lehman and Merrill. Morgan Stanley stock ended up 3.7 percent, but Goldman Sachs closed down, one of the few major financial companies to end the day in the red. Goldman shares lost 5.7 percent.

Earlier in the day, President Bush made a brief statement in Washington intended to reassure Americans about the stability of the financial system.

“The American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence,” the president said at the White House, after canceling a trip to Alabama and Florida. He reiterated the events of the last week in a statement that lasted less than two minutes.

The appearance, which came after the president was criticized in some quarters for not being a more visible presence amid the tumult, did not appear to have any noticeable impact on the markets.

Despite the surge in stocks, investors remained wary about lending to businesses and one another. The cost to insure companies’ debt, a measure of investors’ confidence in the firms, remained at historically high levels, analysts said, although the cost declined slightly from Wednesday.

“Short term, it feels like a little bit of the pressure is off,” said Dave Klein, a manager at Credit Derivatives Research. “But short term right now is a day or two.”

The stock market has churned throughout the week. On Wednesday, the government’s $85 billion rescue of the insurance giant American International Group was met with a 449-point drop in the Dow. That move came just days after the bailout of Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers and the sale of Merrill Lynch.

Another gauge of fear — the Libor rate, which measures how much banks charge one another for overnight loans — remained elevated on Thursday. Yields on Treasury bills moved higher, but remained near historically low levels. Investors are essentially accepting very little or no return on their money in exchange for an investment they are certain will not result in a loss.

European stocks ended mixed, with London’s FTSE 100 index closing down 0.7 percent. Indexes in Paris and Frankfurt were modestly higher. Asian indexes rebounded from initial sharp falls. But investors remained shell-shocked by the recent financial turmoil.

“The dust may settle and the market may take a more sanguine view in time,” said Richard McGuire, a fixed-income strategist at RBC Capital Markets in London, “but for now, it looks like a palliative rather than a panacea.”

In Europe, there was some optimism after a major bank, Lloyds-TSB, said it would buy the troubled British lender HBOS in a $21.7 billion deal.

WASHINGTON (AP) _ Rep. Christopher Shays, who co-chairs Republican John McCain's campaign in Connecticut, is speaking favorably about McCain's Democratic rival Barack Obama in a new TV ad for Shays' own tough re-election fight.

Shays is airing a TV ad that opens with a black-and-white shot of Obama followed by a similar image of McCain.

"The hopefulness of Obama, the straight talk of McCain," an announcer says. "It's what Christopher Shays has always stood for. He goes where the truth takes him."

Shays represents a district anchored by Greenwich and other wealthy suburbs outside New York.

The congressman who stresses his independent ways teamed up with McCain on campaign finance legislation in 2002. Two years ago, McCain campaigned in Connecticut for Shays.

Shays downplays his GOP ties in the commercial that began airing this week. Shays was the only House Republican from New England to keep his seat as Democrats swept to power in fall 2006.

"In a sea of partisanship, Shays is different," the announcer says. "It's not what is Republican or Democrat, it's what's right for America."

Shays' ad is not the first time this election cycle that a Republican congressional candidate has invoked Obama ties. GOP Sen. Gordon Smith of Oregon earlier this year aligned himself with Obama in an ad that cited legislation they worked on to improve automobile fuel efficiency standards.

This fall, Shays is expected to face a hard battle against Democrat Jim Himes, a former banker who is vice president of an affordable housing operation.

Obama is backing Himes.

"Barack Obama has strong, positive vision for America and a long record of bipartisan accomplishment, and we are pleased that it is respected by his Democratic and Republican colleagues in the House," said Obama spokesman Bill Burton. "However, in this race, the good people of Connecticut should know that Barack Obama supports Jim Himes and believes Himes is the candidate who will bring the change American families need to Washington."

Shays' support for the Iraq war nearly cost him re-election two years ago in a southwestern Connecticut district where anti-war sentiment runs strong. Initially one of Congress' strongest war backers, Shays said during his 2006 race that U.S. policies weren't working. President Bush lost the district in 2004.