Stocks Recover on Bargain Hunting

NEW YORK (TheStreet) -- Stocks staged a recovery late in Wednesday's session, as bargain hunters turned a blind eye to another round of disappointing economic data.

The Dow gained 19.61 points, or 0.2%, to close at 10,060.06. The S&P 500 rose 3.46 points, or 0.3% , to 1,055.33, and the Nasdaq ended higher by 17.78 points, or 0.8% at 2,141.54.

Shares of Pfizer(PFE) and Home Depot(HD) were among the Dow's biggest gainers, up 1.1% at $16.00 and 2.1% at $28.37 respectively.

Other stocks that were prominent gainers in the broad market included Barrick Gold(ABX) and Goldcorp(GG)

The Dow dropped as low as 9,938 earlier in the session, as investors reacted to meager growth in durable goods orders in July and more evidence of deterioration in the housing market. That tumble followed Tuesday's action when the blue-chip index dipped below 10,000 for the first time since July 20, mainly on news of that existing home sales plunged 27% in July, sinking to levels unseen in more than a decade. But the cumulative decline over the past four sessions eventually lured buyers back into the market in the last two hours of trading.

"Markets were oversold in the last couple of weeks," says Phil Roth, chief technical strategist at Miller Tabak, on what drove the later recovery. "The major averages got close to support levels and that trading range attracted some bargain hunting."

Roth expects the markets to continue to trade in a narrow range and anticipates more challenges in September. "After labor day, the seasonal influences of the markets will be more and I think the markets will be tested in that period and probably give us the best buying opportunities," he said.

Wednesday saw a fresh set of weak economic data that added to investor woes. Before the opening bell, the Department of Commerce said new-home sales declined 12.4% to 276,000 in July, which was much weaker than the sales of 334,000 that economists had been expecting, according to Briefing.com. July's levels compare to growth of 12.1%, to 315,000 units in June.

Also on Wednesday, the Federal Housing Finance Agency's seasonally adjusted monthly index showed that house prices fell 0.3% in June.

"We are now witnessing the other side of the tax credit," said Robert Dye, senior economist at PNC, reacting to the poor housing data. "Fundamental economic conditions are also weak with poor job creation and foreclosures remain high. The housing market remains disruptive, with no signs of improvement in sight."

July durable goods orders also disappointed, rising a mere 0.3% in July after slipping 0.1% in June. The month's growth was much lower than the 3% increase that economists had been expecting, according to Briefing.com. Excluding transportation, durable orders dropped 3.8%, disappointing expectations for an uptick of 0.5%, and coming in weaker than June's 0.2% growth.

Adding to concerns about the recovery, the Energy Information Administration reported a bearish 4.1 million-barrel build in crude oil inventories for the week ended Aug. 20, which was larger than the increase of 1.1 million barrels that analysts had been expecting. The supply surge also came as a surprise since the American Petroleum Institute reported a 1.85 million-barrel decline in stockpiles late Tuesday.

The EIA also said gasoline supplies rose by 2.27 million barrels, disappointing expectations for a decline of 875,000 barrels, while distillates gained 1.76 million barrels. Analysts had been looking for a milder build of 950,000 barrels.

Crude oil for October delivery shed value following the news but recovered later to settle higher by $1.10 at $72.73.

The recent stream of dismal economic data has worsened fears of a double-dip recession. But PNC's Dye says he is more worried that the economy could stall. "What I am more concerned about is not the classic double-dip but a scenario that happened in 2000-2001, where the GDP bounces between positive and negative growth, essentially stalling out at a low rate. That could lead to little to no job creation, which is at the heart of the problem for the U.S. economy."

In other news, Arizona Sen. John McCain won in a Republican primary Tuesday against conservative J.D. Hayworth, while Rep. Kendrick Meek took Florida's Democratic U.S. Senate primary.

Also, media reports said Dell(DELL) plans to make another offer for 3Par(PAR).

The news comes after a late Tuesday filing from 3Par revealed that the data storage company is opening up merger talks with Hewlett-Packard(HPQ), saying the unsolicited acquisition proposal was "reasonably likely" to lead to a better deal than the one 3Par struck with Dell. 3Par's stock declined 1.1% to $26.76 while Hewlett-Packard's stock ended flat at $38.24. Dell shares rose 1.7% higher at $11.78.

Apple(AAPL) is in talks with News Corp.(NWS), Walt Disney(DIS) and other media conglomerates in an effort to rent TV shows to viewers through iTunes for 99 cents, according to media reports. Apple's stock gained 1.2% to $242.89.

BHP Billiton(BHP) made no mention of its unsuccessful $39 billion hostile bid for Potash(POT) when it reported that profits more than doubled to $12.72 billion in the fiscal year ended June 30 and sales rose 5.2% to $52.8 billion. Earnings, however, came in below the $13.3 billion that analysts had been expecting, according to Bloomberg. Shares ended marginally higher at $65.51.

Luxury homebuilder Toll Brothers(TOL) swung to a third-quarter profit of $27.3 million, or 16 cents a share, which includes pretax writedowns of $12.5 million and a tax benefit of $26.5 million. Sales, meanwhile, fell to $454.2 million from $461.4 million a year ago. Consensus estimates, which exclude one-time items, had been for a loss of 14 cents a share, according to Briefing.com. Toll's stock gained 5.8% to $17.13.

Teen retailer American Eagle Outfitters(AEO) said fiscal second-quarter earnings fell 66% to $9.7 million, or 5 cents a share. Same-store sales slipped 1%. Excluding certain items, the company earned 13 cents, meeting the 13-cent estimate of analysts. American Eagle said same-store sales would be flat or decline in the third quarter and that income from continuing operations would be 23 cents to 26 cents a share. Shares jumped 7.9% to end at $13.48.

Women's retailer Coldwater Creek(CWTR) shares zoomed 42% to $4.75 after the company reported a surprise profit of 2 cents a share and reaffirmed full-year profit guidance for between 8 cents and 12 cents a share, or 2 cents higher than estimates on the low end of the expected range.

Global retailerGuess(GES) said after the closing bell on Wednesday that its profits rose 12% to $66.75 million or 72 cents per share from $59.56 million or 65 cents per share. Analysts were expecting 68 cents. But the stock was falling 4.7% in aftermarket trading to $36.40 on a conservative forecast for the third quarter.

Digital video-recorder makerTiVo(TIVO) reported a wider loss in the second quarter. Loss came in at $15.3 million or 13 cents per share versus $2.7 million or 3 cents per share in the year ago quarter. The loss was however lower than analyst expectations of 15 cents per share. The stock was up slightly at $8.48 during aftermarket trading.

Elsewhere in commodity markets, the December gold contract was ahead by $8.70, trading at $1,242.1 an ounce.

The benchmark 10-year Treasury note reversed earlier gains, declining by 14/32 with the yield inching up to 2.541%.

Meanwhile, the dollar strengthened against a basket of currencies, with the dollar index up by 0.14%.

Overseas, Hong Kong's Hang Seng slipped 0.1%, and Japan's Nikkei fell 1.7%. The FTSE in London shed 0.9%, and the DAX in Frankfurt ended lower by 0.6%.

--Written by Melinda Peer and Shanthi Venkataraman in New York.

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