U.S. Stocks Start Higher As DuPont Raises Forecast

NEW YORK (MarketWatch) -- U.S. stocks bounced back Wednesday from Tuesday's steep drop, lifted in part by a raised 2008 forecast from chemicals giant and Dow industrials component DuPont but tempered by a recession forecast from Goldman Sachs.

The Dow Jones Industrial Average rose 42.3 points to 12,631.3, with 18 of its 30 components trading higher, led by E.I. du Pont de Neumours & Co. , which gained 5.2%. .

The S&P 500 gained 4.04 points to 1,394.23, while the Nasdaq Composite climbed 10.67 points to 2,451.18.

"It is going to be tough to spot bargains when the tone for the U.S. economy and financial stocks is this negative," said Kevin Giddis, fixed-income trading managing director with Morgan Keegan & Co. Inc.

But, given the increasingly negative sentiment, a turnaround could be close, Giddis said.

"The recent data suggest that the U.S. economy is falling into recession," Goldman Sachs said in a note early Wednesday, which also predicted the Federal Reserve would cut interest rates further in response.

Volume on the New York Stock Exchange neared 338 million shares, and advancing stocks outran those declining 15 to 13. On the Nasdaq, 493 million shares exchanged hands, and decliners beat advancers 5 to 4.

On the New York Mercantile Exchange, gold futures edged lower, recently down $3.40 at $876.90, after surging to a new record high of $894.40 in electronic trading early on. .

Crude-oil futures slid 32 cents to $96.01 a barrel.

Tuesday's toll

On Tuesday, fears that Countrywide Financial would file for bankruptcy -- denied by the mortgage lender -- and AT&T's pessimistic outlook prompted a renewed battering for U.S. stocks, with the Dow industrials falling 238 points, the Nasdaq Composite dropping 58 points for its eighth consecutive fall, and the S&P 500 losing nearly 26 points.

Countrywide stock, which on Tuesday fell 17%, declined further Wednesday, recently down 9.5%.

"Housing is driving the bus right off the cliff and taking most financial-related companies with it," said Giddis.

For the Dow Jones Wilshire 500, which lost 266.64 points or 1.8%, Tuesday's close capped the worst five-day start of a year in nearly three decades, with the index down 5.78%, or $1.0 trillion, so far this year.

St. Louis Federal Reserve President William Poole offered a more optimistic view of the economy in an address early Wednesday, predicting a recession would be avoided. .

Federal Reserve Chairman Ben Bernanke is slated to speak Thursday.

Gold futures hit a new record, up as high as $894.40 an ounce before falling back somewhat.

Closing bell

After the close of trade, Alcoa is expected to report a 55% drop in earnings per share, excluding restructuring charges.

Companies in the S&P 500 may report their second straight quarterly decline in earnings -- the first back-to-back drop since the fourth quarter of 2001 and the first quarter of 2002, according to Thomson Financial.

"We're looking for another pretty bad quarter," said Alec Young, equity strategist at Standard & Poor's Equity Research.

E-Trade Financial jumped 9.8% after saying it will exit its institutional trading desk and that it sold $3 billion in available-for-securities, taking a loss of less than $5 million.

MBIA , the bond insurer, said it was slashing its quarterly dividend from 34 cents to 13 cents to strengthen its capital.

Apple agreed to equalize the prices for the music downloads it offers in Europe to settle an antitrust complaint from the European Commission.

By Kate Gibson