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Grappling With an Old Enemy

While value-conscious investors were able to put bloody scenes of London out of their heads by the market's close, the long-term impact on an already fragile world economy of Thursday's terror attacks remains an open question.

Like other major stock proxies, the Dow Jones Industrial Average swooned at the open, losing nearly 100 points as money flowed into safe-haven assets like Treasuries, gold and the Swiss franc. The 10-year Treasury added more than a point before stocks opened in New York, while oil plunged on worries about tourism.

Yet the major indices managed to scrape back into positive territory as bonds' gains faded. The Dow finished up 20.74 points, or 0.2%, to 10,291.42. The S&P 500, which traded as low as 1167 before the market's open, finished at 1196.83, up 1.89 points, or 0.3%. The Nasdaq Composite rose 5.96 points, or 0.29%, to 2074.61.

Pundits chalked up the rebound to resignation among investors that terrorism isn't going away.

"The risk premium linked to terrorism has been there lurking beneath the surface," says Owen Fitzpatrick, head of U.S. equity trading at Deutsche Bank. "The first real surprise was 9/11, but we've been living with it, and there's been some adjustment to it."

Still, the action in oil and a handful of airline and hospitality stocks suggests not everyone is convinced Thursday's impact won't be greater. Delta (DAL), AMR (AMR), Starwood (HOT) and Hilton (HLT) all ended lower, while oil shed 55 cents to $60.73.

Evaluating the impact of events such as the London bombings on the economy and markets is always tricky. On a short-term basis, stocks fall, according to Standard & Poor's chief investment strategist Sam Stovall.

Studying the aftermath of market shocks in U.S. history -- Pearl Harbor, the Cuban missile crisis, the Kennedy assassination, Iraq's invasion of Kuwait, and 9/11 -- Stovall found that the market usually experiences heavy selling for about five trading days, with average price declines of about 6%.

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