Stocks Bounce Back From Shaky Start

Despite worries about the financial sector, the market moves slightly higher. The ADP employment report shows that nonfarm private U.S. jobs climbed by 40,000 in May.
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Updated from 9:04 a.m. EDT

Stocks in New York crept lower at the open as resurfacing financial-sector troubles continued opening the market's old wounds, but within minutes of the start of trading the major averages went positive.

The

Dow Jones Industrial Average

was up 15 points to 12,418, and the

S&P 500

was fractionally ahead at 1378. The

Nasdaq Composite

was gaining 6 points at 2486.

Last time out, the market fell as investors grew anxious about the health of

Lehman Brothers

(LEH)

, and the major indices all closed substantially lower.

As the new session began, traders were met with fresh negative research on financials from a Merrill Lynch analyst, which said that

Countrywide Financial

(CFC)

will probably see cumulative losses rising to between $10 billion and $12 billion as home prices keep dwindling.

That, said the analyst, should translate into ever more worries for

Bank of America

(BAC) - Get Report

, which agreed to buy Countrywide a few months ago. The analyst, who also noted BofA has high exposure to consumers, cut BofA's price target by $1 to $27.

BofA shares lost 0.5% in the premarket.

Meanwhile,

The Wall Street Journal

reported that Lehman has reached out to overseas investors this week for new capital, including one in South Korea, and that Lehman bought back its own shares Tuesday. That day, the paper reported that Lehman was looking to raise $3 billion to $4 billion in order to shore up its ailing balance sheet. Shares of Lehman, which plunged in the prior session, lost another 2.7% early on.

The mood remained sour even as crude oil kept falling. Futures lost 57 cents to $123.74 a barrel. Gold was adding $2.30 at $884 an ounce. The U.S. dollar was down marginally against the euro to $1.5468 and lost 0.1% to the yen at 104.73.

At the same time, the ADP employment report showed that nonfarm private U.S. jobs climbed by 40,000 in May, markedly better than the average economists' consensus for a 30,000 drop. The report noted, however, that this "nevertheless suggests continued weakness in unemployment" as manufacturing employment, in particular, saw its 21st consecutive monthly decline. Last month's data was revised up to 13,000 added positions.

On Friday, the Labor Department will put out its official numbers, and the two reports often differ.

Elsewhere on the economic docket, the government bumped its nonfarm productivity numbers up to 2.6% from the preliminary figure of 2.2%. That was slightly better than expected. Unit labor costs, however, rose 2.2%, more than expected.

"This is something of a surprise and, other things equal, it increases the chance that Friday's official payroll number will beat the current

minus 60,000 consensus," wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics. But he pointed out that ADP has overstated payrolls for the past nine months straight, with an average error of 71,000, and said that "most of the labor market indicators we follow are consistent with clear declines in payrolls."

"But with such volatile data, in any given month, anything can happen," he said.

At 10 a.m. EDT, the Institute for Supply Management is due to release its figures on the services sector for the prior month.

Back on the corporate side, jam maker

J.M. Smucker

(SJM) - Get Report

announced it will buy out

Procter & Gamble's

(PG) - Get Report

Folgers coffee business for some $2.95 billion in stock and $350 million in assumed debt.

After the last market close, clothing purveyor

Guess?

(GES) - Get Report

said its fiscal first-quarter profit soared 35% from a year earlier thanks to its international exposure, enough to top reet's expectations. The company also lifted its full-year guidance for both earnings and sales. Shares were leaping 8.9%.

Staying in earnings, homebuilder

Hovnanian Enterprises

(HOV) - Get Report

lost 6.5% after its second-quarter loss widened sharply to $340.7 million, or $5.29 a share, from 49 cents a share last year. The firm blamed a "persistently challenging market environment."

Home-furnishings retailer

Williams-Sonoma

(WSM) - Get Report

reported a 42% income drop to $10.4 million, or a dime a share, and sharply lowered its same-store sales forecast. The company beat analyst targets in the first quarter, but the stock was still down 1.6%.

Returning to analyst research, Wachovia upped both

Morgan Stanley

(MS) - Get Report

and

Tyson Foods

(TSN) - Get Report

to outperform. Drugmakers

Eli Lilly

(LLY) - Get Report

and

Novartis

(NVS) - Get Report

each got an upgrade at Cowen & Co.

Cowen also lowered

Bristol-Myers

(BMY) - Get Report

to neutral from outperform, however, and hotel chain

Marriott

(MAR) - Get Report

got cut to perform from outperform at Oppenheimer.

Treasury prices were rising. The 10-year note added 5/32 in price to yield 3.88%, and the 30-year bond tacked on 10/32 in price, yielding 4.60%.

Most markets abroad were weaker. In Asia, the Tokyo's Nikkei 225 surged 1.6% overnight, but Hong Kong's Hang Seng Index lost 1%. As for Europe, the FTSE 100 sank 2%, and Germany's Xetra Dax was off 1.5%. The Paris Cac gave up 1.9%.