Dow off 40 as stocks stage big rebound

Updated: 11:43 p.m. ET

U.S. stocks finished lower today, but they recovered well more than half of their worst losses of the day as at least some investors seized the chance to pick up good buys.

Earlier, stocks had slumped to their lowest levels since mid-October on worries that Europe's debt crisis would spread well beyond Ireland.

The fears set off a rally in the U.S. dollar and pushed U.S. interest rates lower. Multinational stocks such as IBM (IBM), Caterpillar (CAT) and 3M (MMM) were also hit.

And then the ship righted itself. The Dow Jones industrials ($INDU) ended the day down 40 points to 11,052, but they enjoyed a huge comeback from a decline of as many as 163 points at 10 a.m. ET. 

The Standard & Poor's 500 Index ($INX)  was off 2 points to 1,188. It was briefly up 3 points at 3:45 p.m. and had been off as many as 16 points in the morning. The Nasdaq Composite Index ($COMPX) dropped 9 points to 2,525 after tumbling as many as 38 points in the morning.

The market's third loss in the last four sessions and an overall decline since right after the midterm elections raise the possibility that stocks have peaked for the year.

The Nasdaq is off 2.1% from a Nov. 5 peak. The Dow and S&P 500 are down 3.4% and 3.1%, respectively, since peaking on Nov. 4. The S&P 500 briefly fell below its 50-day moving average for the first time since September; the Dow closed below its 50-day moving average for the first time since Aug. 31. Both are bearish signals, although no guarantee of what to expect.

However, the Dow's recovery from a 163-point loss suggests a lot of built-up optimism.

It was not clear what triggered the buying. We'll offer three  reasons:

Short-sellers took profits or were forced to cover their positions when the market turned. That requires them to buy back shares they'd borrowed and sold earlier. That reinforces the idea of resilience. Result, as Barry Ritholtz noted on The Big Picture blog: "This is a very tough market to be short in."

The S&P 500 turned when it hit 1,174. That's been an important support level. A drop to that level has triggered buying for the last month.

A rally in the U.S. dollar faded. The U.S. Dollar Index was up 0.452 to 80.885 at 4:10 p.m., but it had peaked at 81,215. As the dollar slipped back, shares of multinational stocks moved higher.

A big day is ahead
Tuesday is a big day for markets, starting with the end of trading for November.

With today's close, the Dow is looking at a decline of 0.6% for the month after two straight monthly gains.

The S&P 500 and the Nasdaq are up 0.4% and 0.7%, respectively -- looking, potentially, at their third monthly gains in a row.

At the same time, there are three important economic reports: the S&P/Case-Shiller home-price index for September and the Chicago Purchasing Managers Index and Consumer Confidence Index, both for October.

Earnings are due from Barnes & Noble (BKS) and the National Bank of Canada (NTIOF). The bank is expected to announce a dividend increase and may set up dividend increases next year for Canada's largest banks, the Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD).

Futures trading suggests a modestly lower open for U.S stocks.  Most Asian and Pacific markets were lower.

Energy prices -- New York close
			Mon.			Fri.			Month chg.			YTD chg.
Crude oil			$85.73			$83.76			5.28%			8.03%
(per barrel)
Heating oil			$2.3581			$2.3162			5.38%			11.46%
(per gallon)
Natural gas			$4.2100			$4.3990			4.26%			-24.44%
(per mil. BTU)
Unleaded gasoline			$2.2846			$2.2103			10.94%			11.29%
(per gallon)
Retail gasoline			$2.8570			$2.8600			1.71%			8.26%
(per gallon; AAA)

Markets boo Irish debt deal
The trigger for the initial sell-off was investor unhappiness with the European Union's $113 billion agreement to bail out Ireland and its tottering banks.

While the initial market reaction -- at least until European stock markets opened -- was positive, the good feelings quickly melted away. The concern was that the crisis will move on to the next weak links in Europe: Portugal and Spain. And there are even worries that Germany's financial position could be at risk.

About €50 billion ($66 billion) are aimed at bolstering Ireland’s public finances while it implements a €15 billion ($20 billion) spending-cut package. Of the rest, €10 billion will recapitalize Ireland’s stricken banks, while another €25 billion ($33 billion) will be a contingency fund to help support the banking system if necessary, the Financial Times said.

As a result, Britain's FTSE-100 Index ($GB:UKX) was off 2.1% to 5,550. Germany's Dax Index ($DE:DAX) was down 2.2% to 6,698.

Crude oil settled up $1.97 to $85.73. Gold settled $3.60 higher to $1,366 in New York. Interest rates were lower, with the 10-year Treasury yield falling to 2.822% from 2.864% on Friday. The dollar was higher against major currencies. The U.S. Dollar Index was up 0.74% to $81.025.

If you want good news from the day's trading, there are two things to mention:

• The National Retail Federation said U.S. shoppers spent 6.4% more than last year over the holiday weekend. Retail stocks, however, were lower.
• Manufacturing indexes from the Dallas and Chicago Federal Reserve banks both showed gains in October. The Chicago Fed's manufacturing index was up 0.7%, its second monthly gain in a row. The Dallas Fed's jobs expectations index, which looks six months ahead, surged to 37.9 from 13 in October.

President Barack Obama said he would reduce federal spending and shrink the budget deficit by announcing pay freezes for federal workers.  The measure will save $2 billion in 2011, $28 billion in the next five years and more than $60 billion over 10 years.

Still, the selling was broad, although the volume appeared not to be heavy. Eleven of the 30 Dow stock were higher, led by American Express (AXP), up 2.5% to $43.33; Bank of America (BAC), up 1.7% to $11.31; and DuPont (DD), up 1.3% to $46.92.

Twenty-four Nasdaq-100 ($NDX.X) stocks were higher, led by Amazon.com (AMZN), up 1.3% $179.49 on the expectation for strong sales today on Cyber Monday and for the holiday season. The index, which tracks the largest Nasdaq stocks, was off 5 points to 2,149, after falling as many as 35 points earlier in the session.

Apple (AAPL), which represents 20% of the market capitalization of the Nasdaq-100, recovered to $316.87, up 0.6%.

FedEx (FDX) bucked the selling pressure, rising 4.7% to $91.59. Credit Suisse raised its rating on the package-shipping company was raised to "outperform" from "neutral," saying the company should benefit from a rebound in global industrial production. Credit Suisse also lifted its 12-month target price on the stock to $111 from $98.

Seven of the 10 sectors of the S&P 500 were lower, but  materials, financial and energy shares pushed into the black on the day. The S&P Select Financial SPDR exchange-traded fund (XLF) was up 0.8% to $14.54. Regions Financial (RF) was up 2.3% to $5.37. The gain was the third-largest among S&P 500 stocks. JPMorgan Chase (JPM) added 1.1% to $37.91.

Wells Fargo (WFC) rose 2.1% to $27.20. The company is expected to be one of the first major banks allowed to restore dividends after sharing capital plans with the Federal Reserve, according to an analyst.

Hewlett-Packard (HPQ) was the Dow's laggard, down 1.4% to $42.60, after a Gartner report said tablet sales are likely to cut into demand for personal computers.  

Starbucks (SBUX) fell 1.1% to $30.79 as Kraft Foods (KFT) initiated an arbitration proceeding to challenge the coffee company's attempt to break their packaged-coffee agreement. Kraft shares fell 0.4% to $30.19.

 

Shares of Johnson & Johnson (JNJ) were down 0.6% at $61.91 after it was ordered to pay Basilea Pharmaceutica $130 million for breaching a licensing agreement.

 

BP's (BP) shares in New York slipped 0.8% to $40.59 after it announced it will sell a stake in an Argentina asset to help pay for the costs of the Gulf of Mexico oil spill.

  

Royal Dutch Shell (RDS.A) put its South Texas gas fields up for sale, The Wall Street Journal said. Royal Dutch Shell shares in New York were off 1.3% to $61.40.

Material from the Street.com was incorporated into this post.

Short hits from the markets -- New York close
			Mon.			Fri.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.16%			0.14%			33.33%			220.00%
5-year Treasury note			1.50%			1.53%			26.97%			-44.27%
10-year Treasury note			2.82%			2.86%			8.04%			-26.57%
30-year Treasury bond			4.15%			4.21%			3.70%			-10.62%
Currencies
U.S. Dollar Index			80.902			80.433			4.45%			3.43%
British pound			$1.5581			$1.5605			-2.94%			-3.68%
(in U.S. $)
U.S. $ in pounds			£0.64			£0.64			3.03%			3.82%
Euro in dollars			$1.31			$1.33			-6.00%			-8.43%
(in U.S. $)
U.S. $ in euros			€ 0.76			€ 0.75			6.38%			9.20%
U.S. $ in yen			84.39			84.07			4.30%			-9.26%
U.S. $ in Chinese			6.69			6.67			-0.11%			-2.03%
yuan
Canada dollar			$0.98			$0.98			-0.01%			3.33%
(in U.S. $)
U.S. dollar			$1.02			$1.02			0.01%			-3.23%
(in Canadian $)
Commodities
Gold			$1,366.00			$1,362.40			0.62%			24.61%
(per troy ounce)
Copper			$3.76			$3.75			0.66%			12.30%
(per pound)
Silver			$27.15			$26.70			10.52%			61.16%
(per troy ounce)
Wheat			$6.50			$6.48			-9.34%			20.08%
(per bushel)
Corn			$5.38			$5.38			-7.52%			29.86%
(per bushel)
Crude oil			$85.73			$83.76			5.28%			8.03%
(per barrel)