Trading was extremely erratic - the Dow Jones industrials rose as much as 203 points in early trading in response to upbeat economic data, then fell nearly 110 during the afternoon before closing up 90. Analysts said weak demand during an auction of government debt stirred up worries about how easily Washington will be able to raise money to fund its economic rescue program. The fear in the market is that the government might not be able to easily raise the hundreds of billions of dollars it needs.
The day shows how fragile Wall Street remains despite a two-week rally that saw the Dow regain more than 1,000 points. The market was pulled in different by opposing forces Wednesday that led to choppy trading - which may well be the pattern for stocks going forward.
"There was a mix of good and bad news and at the end of the day the good news won out," said Alan Skrainka, chief market strategist at Edward Jones. "It's a jumpy market."
Doug Roberts, chief investment strategist at ChannelCapitalResearch.com, said, "Right now there is a lot of crosscurrents coming. People want to be flat going in to the following day. They really don't want to be holding a major position."
Some analysts said the late surge was due in part to short covering. That's a trend caused by investors who had borrowed and sold stock on a bet the market would fall, and who have to cover their positions when they see the market starting to turn higher.
The day's oscillations, which recall some of the volatile trading Wall Street saw during the worst of its fall and winter selling, aren't surprising and in fact may be a sign of the market's resilience. While no one knows if the market is indeed recovering, analysts expect some pullbacks and uncertainty as investors try to figure out their next moves.
"I think we're vulnerable to the changing views of the market over very short time periods," said Jim King, chief investment officer at National Penn Investors Trust Co. in Reading, Pa.
The Dow closed up 89.94, or 1.17 percent, at 7,749.81, while the Standard & Poor's 500 index rose 7.63, or 0.95 percent, to 813.88 and the Nasdaq composite index rose 12.43, or 0.82 percent, to 1,528.95.
Two stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.77 billion shares.
The Russell 2000 index, which tracks small company stocks, rose 9.74, or 2.34, to 426.52.
Bond prices fell after the auction of $34 billion in 5-year Treasury notes. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.77 percent from 2.71 percent late Tuesday. The yield on the three-month T-bill rose to 0.19 percent from 0.17 percent Tuesday.
Investors gave an unexpectedly cool response to the note sale just a day after a $40 billion auction of 2-year notes suggested strong demand. The government is running up record deficits in order to fund an array of plans to provide stimulus to the economy and support to the ailing financial system. Any suggestion that demand for U.S. government debt is weakening is a negative for stocks, simply because Wall Street has been relying so heavily on the government's rescue plans.
The surge of worry over the debt auction wiped out the market's early optimism in response to durable goods and.
New home sales rose 4.7 percent in February to a seasonally adjusted annual rate of 337,000 from an upwardly revised January figure of 322,000. But even with the tweak to January's numbers, the month remained the worst on records dating to 1963. Economists surveyed by Thomson Reuters had expected February sales to fall to a pace of 300,000 units.
"Low mortgage rates coupled with the decline in home prices is putting a lot of affordability at the disposal of prospective homebuyers," Greg McBride, senior financial analyst at Bankrate.com, told CBS News.
Orders at U.S. factories for cars, airplanes, household appliances, furniture and other large goods rose 3.4 percent last month, far better than analysts' forecast of a drop of 2 percent. The increase was the biggest in 14 months and breaks a streak of six straight monthly drops. However, a large drop in orders in January was revised even lower.
New home sales rose 4.7 percent in February to a seasonally adjusted annual rate of 337,000. The month was still the worst on records dating to 1963. Economists surveyed by Thomson Reuters had expected February sales to fall to a pace of 300,000 units.
The economic reports followed a series of better-than-expected numbers that have helped stocks rally so sharply the past two weeks.
Although the data haven't been strong enough to shield the market from disappointments like Wednesday's auction, analysts were heartened by the pickup at the end of the day.
"Today was somewhat different and encouraging in the fact that investors came in to buy weakness at the close," instead of accelerating downward on the first sign of selling, said Michael Sheldon, chief market strategist at RDM Financial. He said that marked a shift from the late-day selloffs the market had seen in recent months, when traders were abandoning stocks.