Stocks march forward

NEW YORK (CNNMoney.com) -- Stocks rallied for a second session Thursday as investors continued to jump back into equities after a steep selloff.

The Dow Jones industrial average (INDU) added 0.9 percent, according to early tallies. On Wednesday, the blue-chip indicator staged a late-session comeback, erasing a 326-point loss and climbing an additional 298 points by the close.

The Standard & Poor's 500 (SPX) index gained 1 percent and the Nasdaq composite (COMP) gained 1.9 percent. Both indexes had also staged late-session turnarounds on Wednesday.

Some upbeat earnings, more talk of a possible bond insurer bailout and news that the White House and Congressional leaders have struck a deal for a stimulus package all contributed to the positive tone. The positives managed to overshadow more bad news for the housing market.

But the bounce, both Wednesday and Thursday, was also attributable to short covering, traders said. Short covering refers to a process by which investors who have sold stocks short, to take advantage of a falling market, need to buy them back as the market starts to rise.

"This is the oversold bounce that people have been looking for and provided there's a lack of negative news, it can probably continue into next week," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

But he said that market makers are not ready to see this as a sign that markets have turned the corner. "You have a lot of hopeful buyers on the sidelines looking for evidence that stocks have bottomed, but what has really changed in a day?," he said. "We still have the subprime mess to deal with."

A rocky start. Stocks have had a miserable start to 2008, falling on fears that the credit and housing market crises will send the economy into a recession, if they haven't done so already.

The declines racked up this year are an extension of the weakness from the last quarter of 2007. During Wednesday's session, the Nasdaq fell briefly into bear-market territory, defined as down by more than 20 percent from cyclical highs. The Dow and S&P 500 both fell as much as 18 percent from their all-time highs hit in October.

That steep selloff set stocks up for a big bounce back that was triggered Wednesday by reports that New York regulators and banks are seeking a means of raising money for struggling bond insurers.

The momentum carried through Thursday even as the bond insurers were dealt another blow. Ratings agency Fitch downgraded Security Capital Assurance's financial strength rating after it said it had scrapped plans to raise $2 billion to maintain the rating. Security Capital (SCA), MBIA (MBI) and Ambac Financial (ABK) all slumped.

Wall Street also continued to react to the Federal Reserve's emergency interest-rate cut on Tuesday.

House leaders and Treasury Secretary Henry Paulson announced the details, in the afternoon, of the $150 billion fiscal stimulus plan to boost economic growth. (Full story).

Economic news. The session brought more bleak news on the housing market fallout. December existing home sales saw the biggest drop in 25 years. (Full story).

In other economic news, weekly jobless claims fell last week, with less Americans filing new claims for unemployment than had been expected.

Earnings news. Nokia (NOK) reported a 44 percent jump in net profit and said that it had reached its goal of 40 percent market share in handset sales. The company also said that while it expects continued growth in 2008, first-quarter growth would slow from the last quarter of 2007. Shares jumped 6 percent.

On late Wednesday Qualcomm (QCOM, Fortune 500), which makes chips for cell phones, reported strong fiscal first-quarter results and forecast second-quarter and full-year profit in line with forecasts. Shares jumped 10 percent in active Nasdaq trade Thursday.

Symantec (SYMC) said it expects fiscal fourth-quarter and full-year profit to top forecasts. The security software firm also reported higher third-quarter earnings. Shares jumped 10 percent in active Nasdaq trade.

Capital One Financial (COF, Fortune 500) said late Wednesday that its fourth-quarter profit dropped due to charges associated with its mortgage business shutdown, but earnings topped estimates. Shares gained Thursday.

eBay (EBAY, Fortune 500) warned late Wednesday that first-quarter and 2008 results won't meet estimates. The online auctioneer posted fourth-quarter results that topped estimates, but investors focused on the warning, sending shares 6 percent lower on Thursday.

Separately, eBay said that CEO Meg Whitman will step down in March, around the time of her 10-year anniversary with the firm, as had been expected.

Weakness in Home Depot (HD, Fortune 500), Wal-Mart Stores (WMT, Fortune 500) and Merck (MRK, Fortune 500) dragged on the Dow industrials.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to two on volume of 2.17 billion shares. On the Nasdaq, advancers beat decliners by more than four to three on volume of 2.97 billion shares.

Other markets. European markets rallied. Most Asian markets ended higher, with the exception of Hong Kong.

Treasury prices fell, raising the yield on the 10-year note to 3.64 percent from 3.60 percent late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and rose against the yen.

U.S. light crude oil for March delivery rose $2.42 to settle at $89.41 a barrel on the New York Mercantile Exchange after the government reported a stronger-than-expected rise in crude supplies last week.

COMEX gold rallied $22.70 to settle at $905.80 an ounce.