NEW YORK – Wall Street showed some signs of stability Tuesday as investors, heartened by government plans to aid consumer lending companies, selectively bought more stocks following a huge two-day rally. Gains in blue chips gave the Dow Jones industrials and the Standard & Poor's 500 index their first triple-session advance in more than two months.
Tech stocks lagged the market, sending the Nasdaq composite index lower, as investors bet that businesses will continue slashing capital spending in a recession. Some selling was widely expected after a two-day rally that sent the Dow up nearly 900 points, but the fact that the market performed so well — a contrast to its behavior after past rallies — was an indication that investors are regaining some of the confidence that has been decimated by months of bad economic news.
Three straight days of gains for the Dow and S&P indicates an underlying strength in the market, particularly in the face of a weak technology sector, said Richard E. Cripps, chief market strategist for Stifel Nicolaus.
But it's "probably too premature" to say that the market has already hit its lowest level of the downturn, he said. "This bottoming phase is going to be a process."
Many analysts thought the market had reached a bottom weeks ago after the devastating losses of early October, only to see Wall Street take an even sharper dive just last week.
Investors were encouraged Tuesday after the Treasury Department and the Federal Reserve said they planned to provide $800 billion to help unfreeze the market for consumer debt and to make mortgage loans cheaper and more available. The program is aimed at reviving moribund credit markets.
The government, while looking to reduce fear in the credit markets, is eager to see lenders including credit card companies, student loan issuers and car purchase financers resume more normal levels of lending to help stimulate the economy. Since September, when credit markets first froze, financial institutions have been hesitant to hand over money for fear they won't be repaid. That, in turn, has made it harder for businesses and consumers to borrow.
"We're getting more clarity about the federal assistance across the board, and I think that's being well received," said Arthur Hogan, chief market analyst at Jefferies & Co. "Most of the overhangs in the market are getting answers."
The Dow rose 36.08, or 0.43 percent, to 8,479.47. The index was up 164 points earlier in the session but also fell 161. The Dow last put a three-day advance together on Aug. 26-28.
Broader indexes were mixed. The S&P 500 rose 5.58, or 0.66 percent, to 857.39, giving the index its first three-day rise since Sept. 10-12. The Nasdaq composite index, hurt by signs that companies are cutting back on technology spending, fell 7.29, or 0.50 percent, to 1,464.73.
Still, advancing issues were ahead of decliners on the Nasdaq Stock Market by 5 to 4. On the New York Stock Exchange, advancers were ahead by more than 2 to 1 on consolidated volume of 6.72 billion shares, compared with 7.65 billion on Monday.
The government's latest effort to combat the fear hobbling the marketplace overshadowed a report that the nation's overall economic output shrank in the July-September quarter faster than initially estimated as consumers slashed spending by the most in 28 years.
The Commerce Department said third-quarter gross domestic product declined at a 0.5 percent annual rate, outpacing the 0.3 percent first estimated a month ago. Still, Wall Street had expected the number would worsen, so the report didn't catch the market by surprise. It was the worst reading since growth fell at a 1.4 percent pace in the third quarter of 2001, which was during the last recession.
And, ahead of the holiday shopping season, investors got some good news about consumers. The Conference Board said its Consumer Confidence Index unexpectedly rose to 44.9 in November, up from a revised 38.8 in the previous month. Last month's reading was the lowest since the research group started tracking the index in 1967. Economists expected the index to slip to 37.9.
The business research group said Americans' views on the economy still remain the gloomiest in decades. Consumer spending, always a concern on the Street, has taken on greater importance because the economy cannot expand unless consumers are spending — and they've shown increasing reluctance the past few months, a troubling sign with the holiday season approaching.
Treasury bonds fell during the session after most investors focused on the stock market. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.09 percent from 0.01 percent late Monday. Investors worried about the economy and bad debt have flooded into safest areas of the credit markets, driving down yields, but some of their anxiety eased Tuesday.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.10 percent in late trade from 3.33 percent on Monday.
The dollar was mixed against other major currencies, while gold prices fell. Light, sweet crude fell $3.73 to settle at $50.77 a barrel on the New York Mercantile Exchange.
Starbucks Corp. warned in a regulatory filing late Monday it expects sales to continue to weaken, at least through the end of the fiscal year. The Seattle-based coffee chain said it expects same-store sales, or sales at stores open at least a year, to decline in fiscal 2009; a bleak outlook earlier this month helped set off a wave of selling on economic fears.
Same-store sales are an important retail metric because they measure how established stores are performing, not just new ones. Shares fell 38 cents to $8.08.
Hewlett-Packard Co. on Monday posted fiscal fourth-quarter earnings that topped Wall Street's forecast as strong laptop sales helped offset falling printer orders and weakness in some server lines. Shares fell 24 cents, or 2.9 percent, to $8.21 after analysts said they remain concerned about how the company will fare during the recession.
The Russell 2000 index of smaller companies rose 6.38, or 1.46 percent, to 443.18.