- The Washington Times - Thursday, August 20, 2009

NEW YORK | The stock market extended a streak of erratic trading Wednesday, rebounding from early losses and rising moderately after a drop in oil inventories lifted hopes for an economic recovery.

The day, which began with a sharp loss driven by a big drop in China’s biggest stock market, followed a trading pattern seen in markets around the world this week. Stocks have alternately advanced and retreated as investors shuttle between worries about the economy’s challenges, namely consumer spending and high unemployment, and nascent signs of healing.

While the surprising decline in crude inventories was a reassuring sign, there is still plenty of caution among investors. Although stocks recovered, Treasury prices held on to most of their gains. Government debt is a safe-haven investment in a struggling economy.

News from the Energy Department that the nation’s oil inventory fell by more than 8 million barrels in the past week sent oil prices and then stocks higher, as investors bet that the drop in stockpiles is an indication that energy demand is rising and the economy is indeed improving.

The Dow Jones Industrial Average rose 61.22, or 0.7 percent, to 9,279.16. The Standard & Poor’s 500 Index rose 6.79, or 0.7 percent, to 996.46, while the Nasdaq Composite Index rose 13.32, or 0.7 percent, to 1,969.24.

The Russell 2000 Index of smaller companies rose 5.22, or 0.9 percent, to 561.65.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.46 percent from 3.52 percent late Tuesday. It was trading at 3.44 percent before the oil report.

Light, sweet crude jumped $3.23 to $72.42 a barrel on the New York Mercantile Exchange.

Analysts said Wall Street’s gains on Wednesday were likely magnified by short-covering, in which investors have to buy stock after having earlier sold borrowed shares in a bet they would fall. That rush to cover ill-timed bets can quicken the market’s climb.

At the same time, money managers and investors are still afraid of missing out on a rally that began in March and has continued despite period setbacks.

“I think people would like to buy [stocks] lower, but as the market creeps higher, people are kind of forced to buy,” said Nick Kalivas, vice president of financial research at MF Global. “The action today especially has been much stronger than I would hope and it is making me nervous about my bearish view.”

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