U.S. Stocks Bounce Back In Late-session Surge Led By Financials

NEW YORK (MarketWatch) -- U.S. stocks reversed course to strike solid gains late Wednesday after an oversold market found a bottom, albeit a likely temporary one, with financials leading the way higher in the wake of the Federal Reserve's interest-rate cut and prospects of another Fed move next week.

The financial sector, which traded well yesterday, accelerated its advance on "what the Fed did yesterday and prospects for next week," said Peter Boockvar, equity strategist at Miller Tabak.

The market was "dramatically oversold" and due for a counter-trend bounce, said Boockvar.

Stocks had extended losses this morning as worries of a global recession intensified after the European Central Bank dashed hopes for synchronized rate action following the Federal Reserve's emergency cut and Apple Inc.'s disappointing outlook.

"We are going to have a hard time holding this economy together, with or without the Fed's cuts. The Fed has taken their best shot and the market is telling you it didn't hurt a bit. What else you got? You can't help but be worried," said Kevin Giddis, managing director, fixed income trading at Morgan Keegan & Co.

Down about 300 points earlier on, the Dow Jones Industrial Average was more recently up 261.9 points, or 2.2%, to 12,233.1, with 22 of its 30 components trading higher.

"[Monday's] move by the Fed did help the regional-bank stocks and insurers, as they stand to benefit from lower funding costs for them and more favorable lending rates for consumers -- that is, if the consumer still has a job," added Giddis.

The S&P 500 Index climbed 25.03 points, or 1.9%, to 1,335.53, with the technology-heavy Nasdaq Composite Index gaining 24.66 points, or 1.1%, to 2,316.93.

"We started the day hoping we'd get coordination from other central banks, but instead the ECB talked about ongoing fear of inflation. Plus, Apple's guidance was lackluster at best, dragging the rest of technology down with it," said Art Hogan, chief market strategist at Jefferies & Co.

On the New York Mercantile Exchange, crude futures fell $1.96 to $87.25 a barrel, while gold futures were also down, recently falling $7.20 to $883.10 an ounce. .

Volume on the New York Stock Exchange topped 2.4 billion shares, with advancing stocks outpacing those declining 2 to 1. On the Nasdaq, more than 3.2 billion shares traded hands, and advancing stocks outran those declining nearly 2 to 1.

Treasury rally

Wall Street's slump fueled a rally in the Treasury market, with the benchmark 10-year note recently up 25/32 to 107 15/32 and its yield dropping to 3.351%. .

In currency trading, the dollar gained on the euro and pound but slipped against Japan's yen. .

Sterling lost ground even after minutes of the Bank of England's meeting in early January showed its monetary-policy committee voted 8 to 1 to hold interest rates unchanged, indicating significant concerns over the outlook for inflation. .

"In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," said Jean-Claude Trichet, president of the ECB.

Sour Apple

On the earnings front, shares of Apple fell more than 17% after the consumer-electronics maker's outlook for the second quarter of fiscal 2008 came up short of analysts' expectations. .

Wireless bellwether Motorola Inc. also weighed in with disappointing results, reporting an 84% fourth-quarter profit decline as well as warning that a turnaround in its handset division would take longer than expected. .

Shares of Motorola were down 18.8%.

Texas Instruments Inc. bucked the negative trend, its stock edging higher after the world's largest maker of cell-phone chips reported better-than-expected fourth-quarter profits. .

Pfizer Inc. gained nearly1% after lifting its 2008 outlook and topping fourth-quarter expectations.

At one point on Tuesday, the Dow fell more than 460 points before recovering to close with more modest losses, after the Fed surprised investors by cutting its main interest-rate target by 75 basis points to 3.5%. That move came one week ahead of the Fed's scheduled monetary-policy meeting.

By Kate Gibson