Market Keeps Its Head Above Water

Despite raging oil prices and dour jobs data, the major indices achieve modest gains, rallying after two days of less-than-stellar trading.
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Updated from 2:51 p.m. EDT

Stocks in New York managed to achieve modest gains Thursday following a huge equities selloff over the prior couple of sessions, even against the backdrop of oil prices that, despite today's mild retreat, remained stubbornly high.

The

Dow Jones Industrial Average

took a midday dip to the flat line but spent most of the day in the green and finished up 24.43 points, or 0.19%, to 12,625.62. The

S&P 500

added 3.64 points, or 0.26%, to 1394.35, and the

Nasdaq Composite

turned in the strongest performance, tacking on 16.31 points, or 0.67%, to 2464.58.

The action came on the heels of a two-day tumble for stocks that robbed the Dow of roughly 430 points, with the

most recent plummet

having been sparked by red-hot oil futures and sobering economic predictions by the

Federal Reserve

.

"It looks like the drop in the Dow down to around the 12,600 level was just enough to attract some buying interest," said Fred Dickson, senior vice president and market strategist with D.A. Davidson. He also pointed out that this is an options-expiration week, which usually spurs abnormal volatility.

Investors seemed to find a bit of relief in oil, which was at least briefly taking a break from its nearly unremitting run-up over the past few weeks. Futures climbed past another new round number this morning,

$135 a barrel

, but later retreated to a $2.36 loss at $130.81.

Still, Marc Pado, U.S. market strategist with Cantor Fitzgerald, said that today's move constitutes a rather marginal correction following crude's surge over the past few days. "It's going to be seen in relative terms, and so down a buck or two is not going to motivate anybody to start getting involved in the markets here," he said.

"It's still all about oil," he said. "You get to these points of focus in the market, whether it's housing or the dollar or oil, and when the market gets transfixed like this, there's no getting away from it."

Dickson echoed that sentiment. "The major worry before was credit, and now it's the impact of rising oil prices on the economy," he said. "We seem to cross one wall of worry only to slam into the next one. But, all things considered, I think equity investors have been braced for the worst, and the market reaction to the spike in oil prices over the past four days has been really muted, and the market appears to be quite resilient. We're not down 1,000 points."

"The market's holding up pretty well, all things considered," Pado said. "These

oil prices never would have been conceived of as being tolerated three months ago." He said traders are probably holding the line as much as possible while they await the expected positive upshot from the Fed's big January interest-rate cuts -- the effects of which typically take at least six months to be even minimally felt -- and the government's tax-rebate stimulus checks.

"They want to stay with the idea that the economy is going to show some signs of recovery," he said. "But no one's going to get too excited about equities for awhile."

Stocks' breadth was positive, though volume was fairly thin. About 1.97 billion shares changed hands on

New York Stock Exchange

, which saw advancing issues edging past decliners by a 5-to-4 margin. Volume reached just 1.92 billion shares on the Nasdaq as winners outpaced losers 3 to 2.

That came as gold futures lost ground in concert with oil, surrendering $10.30 to $918.30 an ounce. The U.S. dollar took back some of its recent losses, adding 0.5% against the euro to $1.5697 and jumping 1.2% against the yen at 104.34.

On the economic docket, the Labor Department's jobless claims report revealed a sharp decline in the number of workers applying for unemployment benefits. Claims in the week ended May 17 totaled 365,000, down 9,000 from the prior week and 8,000 lower than expected.

But the Office of Federal Housing Enterprise Oversight delivered yet more abysmal news on the housing crisis. Its purchase-only house-price index revealed that home prices sustained their worst quarterly drop on record in the first quarter, falling 1.7% sequentially, compared with a fourth-quarter decline of 1.4%. Year over year, said the OFHEO, prices deflated by 3.1% -- the worst fall in the index's 17-year history.

On the corporate side, Swiss bank

UBS

(UBS) - Get Report

priced a $15.5 billion rights issue

31% below its last closing price

on the Zurich exchange, but shares were still picking up 1.9% on the

New York Stock Exchange

as Keefe Bruyette upped the stock to market perform from underperform.

Automaker

Ford

(F) - Get Report

, meanwhile, said it would

slash overall production

for the rest of the year, impacting its earlier forecast of returning to the black in 2009, as it particularly cuts back on gas-guzzling SUVs and large trucks. Instead, the company will focus on smaller, more fuel-efficient vehicles as consumer demand shifts "quickly" in that direction. Shares were off 8.2%.

Separately, wholesale power-generation outfit

NRG Energy

(NRG) - Get Report

proposed an unsolicited takeout bid of $11 billion for rival

Calpine

(CPN)

, which earlier this year dug itself out of bankruptcy. Shares of NRG slumped 5.1% as Calpine climbed 8.1%.

In earnings,

GameStop

(GME) - Get Report

shares tumbled as much as 13.2% -- but closed down just 3.9% -- even though the video-game retailer bumped up its full-year guidance and topped analyst targets for the most recent quarter with more-than-doubled earnings of $62.1 million, or 37 cents a share. Investors seemed

less than impressed

that were merely in line with estimates.

Fellow retailer

Limited Brands

(LTD)

, however, rose 3% after nearly doubling its fiscal first-quarter profit with help from the sale of a joint venture. Adjusted earnings for the company, which operates the Victoria's Secret and Bath & Body Works retail chains, came in ahead of the average Wall Street estimate.

Among other positive retail earnings reports,

PetSmart

(PETM)

beat on both top and bottom lines for the fiscal first quarter, even as it guided under current-quarter projections. Jewelry purveyor

Zale

(ZLC)

widened its quarterly loss, but the results were in line. Shares were up 3.7% and 13.6%, respectively.

On the other hand,

Barnes & Noble

(BKS) - Get Report

cut its full-year guidance for same-store sales, or those for stores that have been open a year or more, to "slightly negative" from "slightly positive," even as the bookseller maintained its 2008 profit outlook. The company also

widened its loss

by a penny to 4 cents a share, though it was in line with expectations. The stock shed 8 cents at $29.87.

Dick's Sporting Goods

(DKS) - Get Report

slid 16.2% after coming in a penny short of per-share expectations for the fiscal first quarter, and women's-apparel seller

Ann Taylor

(ANN)

reaffirmed its full-year outlook, which dips below the analyst consensus. Its shares dipped 0.7%.

Treasury prices were plunging. The 10-year note was down 28/32 in price to yield 3.91%, and the 30-year bond gave up 1-10/32 in price, yielding 4.62%.

Markets abroad were mixed. The Nikkei 225 in Tokyo added 0.4% overnight, but Hong Kong's Hang Seng Index sank 1.6%. In Europe, the FTSE 100 slipped 0.3%, and Germany's Xetra Dax climbed 0.4%. The Paris Cac was up fractionally.