What a Week: Late Bloomer

Stocks rose modestly this week, but the gains seemed much more impressive considering the drubbing that opened the holiday-shortened week.

Indeed, the proverbial wheels felt like they were coming off the bus Tuesday after an announcement Monday -- when U.S. markets were closed -- by South Korea's central bank that it would seek to diversify its foreign reserve holdings.

In response, and also in reaction to oil's surge (which a weak dollar exacerbates), the Dow Jones Industrial Average suffered its worst point loss since May 2003 and the S&P 500 its worst in six months. Meanwhile, the dollar sustained its biggest decline since August and gold futures soared to a 2005 high.

South Korea's announcement seemed to be a fulfillment of the "sum of all fears" scenario whereby foreigners refuse to own or buy more of the dollar and dollar-denominated assets, sparking a self-replicating cycle of dollar selling by foreigners leading to tumbling financial assets, leading to more dollar selling and, ultimately, sharply higher interest rates. That, in turn, would crush the housing market, consumer spending and the economy in general.

But as is often the case, the time to buy was when the situation looked worst.

Mounting a very successful three-day recovery from Tuesday's widespread losses, blue-chip proxies ended the week at their highest levels of 2005. The Dow ended the week up 0.5% to 10,842.57, the S&P 500 rose 0.8% to 1211.41 and the Nasdaq gained 0.3% to 2065.38.

Stocks rose modestly Wednesday after the consumer price index report quelled inflation fears -- for now -- but Thursday afternoon was key to the comeback as stocks rallied solidly after oil had a modest intraday reversal. The pattern repeated Friday as stocks gained momentum in the afternoon following an upward revision to fourth-quarter GDP and further evidence of robust housing activity, despite a slight drop in existing home sales.