Choppy Trading Ends in Upswing

Stocks rose Wednesday as a day of choppy trading concluded on an upswing, with investors betting that the market’s recovery from a midsummer plunge will gain traction.

“The market realizes that an awful lot of negative news has been embedded in prices,” said John Davidson, chief executive of PartnerRe Asset Management. “The extreme negativism in the market is dissipating, and that’s allowing the market to move higher.”

Wall Street also welcomed upbeat comments by Federal Reserve officials about the U.S. economy, which buoyed stocks and nudged up yields on Treasury securities.

The Nasdaq composite index rose 32.66 points, or 2.4%, to 1,409.25. The Dow Jones industrial average gained 85.16 points, or 1%, to 8,957.23, after moving in and out of positive territory throughout the day. The Standard & Poor’s 500 index added 11.93 points, or 1.3%, to 949.36.

Winners led losers by more than 2 to 1 on Nasdaq and the New York Stock Exchange. Volume continued to be modest.

With no key economic reports to help drive trading, investors listened closely to comments from three regional Federal Reserve bank presidents, whose remarks were seen as hinting that the economic recovery is on track and the U.S. central bank may not need to cut interest rates.

In separate speeches, Anthony Santomero, president of the Philadelphia Fed; Michael Moskow, president of the Chicago Fed; and Robert Parry, head of the San Francisco Fed, said interest rates are low enough to keep consumers spending and fuel the economic rebound.

“I’m confident the tools we have available will be effective in continuing this recovery and leading us to potential growth,” Santomero said.

The comments dampened investors’ enthusiasm for bonds as hopes for further Fed rate cuts dimmed. The yield on the benchmark 10-year Treasury note rose to 4.20% from 4.15% on Tuesday.

Many investors are convinced that a bottom has been reached in the market and are picking up stocks at relatively cheap prices, said Rick Meckler, president of investment firm LibertyView. “But there are still some stories that have made it a mixed bag.”

Other analysts noted that the big rally in bonds as stocks fell in the spring and early summer has meant that some institutional funds now are forced to make asset allocation moves out of bonds and into stocks. That has fueled the summer rally on Wall Street, said Tony Dwyer, chief market strategist at Kirlin Holdings.

“So the rally is not based on economic fundamentals,” he said. “For the time being, it may grind its way higher 5% or 10% over a few months, but I am looking for a pullback” after that.

Investors have been breathing easier about issues related to questionable accounting in recent days, although their worries have not completely evaporated. The guilty plea Wednesday of Michael Kopper, the first former Enron executive to admit wrongdoing in the collapse of the Houston energy trader, appeared to have little effect on stocks.

In other highlights:

* Oil prices rose again, led higher by speculators, as fears of a U.S.-Iraq military confrontation outweighed news that U.S. oil stockpiles rose last week. At the New York Mercantile Exchange, crude oil for October delivery closed up 47 cents at $29.24 a barrel. The September crude contract, which expired Tuesday, had risen as high as $30.32, the highest price since February 2001, before closing Tuesday at $30.11.

* Investment banks and brokerages were under pressure after Salomon Smith Barney cut its ratings on several stocks in the sector, including Goldman Sachs, down 63 cents to $79.88, and Lehman Bros., which fell $2.20 to $58.98.

* Home Depot rose $2.43 to $32.68, a day after the home improvement retailer posted a sharper-than-expected gain in quarterly earnings.

* The retailing sector also got a boost from solid results from other companies in the sector and Goldman Sachs’ initiation of research coverage on 10 specialty stores. Gymboree, among those started by Goldman, jumped $1.45, or 9.7%, to $16.35. Late Tuesday, Gymboree upped its profit forecast for its fiscal year.

But RadioShack sank more than 16% after the consumer electronics retailer lowered its quarterly earnings outlook, saying sales have weakened dramatically in August. It fell $4.74 to $24.21. Among rival chains, Best Buy fell 76 cents to $23.10, and Circuit City Stores lost $1.15 to $14.25.

Markets Roundup, C7-8