Stocks Work Through Fear

The major indices end with gains despite London's carnage.
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Updated from 4:10 p.m. EDT

Stocks finished a trying session with modest gains Thursday, rebounding impressively from early losses that were sparked by terrorist attacks that killed dozens in London.

The

Dow Jones Industrial Average

closed up 31.61 points, or 0.31%, to 10,302.29, rebounding from a nearly 100-point loss in the session's first minutes. Futures on the blue-chip proxy plunged as much as 200 points in electronic trading just after the London subway and bus explosions, which occurred around 4:30 a.m. EDT.

The

S&P 500

, which traded as low as 1167 before dawn, closed at 1197.87, up 2.93 points, or 0.25%. The

Nasdaq

rose 7.01 points, or 0.34%, to 2075.66.

"Investors have turned their attention from what happened in England to the U.S. economy," said Michael Sheldon, chief market strategist with Spencer Clarke. "While the first inclination was to sell, it may have been a reaction led by fear rather than market fundamentals."

Trading volume on the

New York Stock Exchange

was 1.51 billion shares, with advancers edging decliners 9 to 7. About 1.61 billion shares changed hands on the Nasdaq, with advancers and decliners even.

Helping stocks recover were strong June sales updates from a slew of big U.S. chain stores, and optimism ahead of Friday's employment report, which is expected to show that 195,000 new jobs were created last month.

Stock markets in Europe bore the brunt of the initial reaction. London's FTSE 100, which was off 4% at one point, finished down 1.5% to 5158. Germany's Xetra DAX lost 1.9% to 4530.

"We're seeing the traditional buying come in during crisis mode," said Paul Mendelsohn, chief investment strategist with Windham Financial. "Buyers are taking advantage of the opportunity with stocks down at prices they wanted them at. We violated some critical supports this morning, but we've been able to get back above those resistance points."

Treasury bonds, a safe haven in times of crisis, ended higher, with the 10-year note up 6/32 in price to yield 4.05%. Yields went as low as 3.93% early Thursday.

And oil fell after running to a record $62.10 a barrel overnight on concerns about two Gulf Coast storms. August crude finished down 55 cents to $60.73. It went as low as $57.20 earlier. An Energy Department report showing a stronger-than-expected build in distillate inventories quickened the selling.

The British pound fell against the dollar and euro, while gold was up about half-percent to $425.40 an ounce. The dollar was lower against the euro to trade at $1.1946, while the yen was at 112.01 a dollar.

At least four explosions occurred almost simultaneously in the London subway system and on a bus during the height of morning rush hour. According to

The Associated Press

, a U.S. law enforcement official said at least 40 people were killed in the attacks, with hundreds more injured.

British Prime Minister Tony Blair blamed terrorists.

"It's reasonably clear there has been a series of terrorist attacks in London," Blair said. "Obviously there are casualties, both people who have died and people who are seriously injured." Blair said the attacks appeared timed to coincide with the start of the G8 meeting of international leaders in Gleneagles, Scotland.

Stock analysts expressed horror at the loss of life but advised investors not to panic.

"We'll work through this," said Bryan Piskorowski, market analyst with Wachovia Securities. "We're in the midst of a slowdown already, and the markets have been grappling with that. A lot of the major averages are already around 200-day moving averages, which is a key focal point. Unfortunately, terrorism is something we've lived with for quite a long time."

The incidents occurred one day after London was chosen to host the 2012 Olympics.

Asian markets closed before the explosions occurred. In Japan, the Nikkei fell 0.1% overnight to 11,590, while in Hong Kong, the Hang Seng fell 0.9% to 14,031.

The decline in crude prices affected oil stocks, with

Royal Dutch

(RD)

lower by 0.8%, and

BP

(BP) - Get Report

ending 0.5% lower.

Airlines also suffered, with

Delta

(DAL) - Get Report

falling 2.9% and

Continental Airlines

(JBLU) - Get Report

lower by 1.6%.

Stronger sectors Thursday included utilities, retail, HMOs, brokerages and homebuilding. Declining areas were led by materials, energy, technology, airlines and transportation.

Besides processing a new round of geopolitical paranoia, Wall Street faced the start of earnings season Thursday as well as the monthly deluge of same-store sales updates, most of which were solid.

The biggest retailer,

Wal-Mart

(WMT) - Get Report

, confirmed its previous statement that June same-store sales rose 4.5% from a year ago and said that existing second-quarter earnings estimates of 65 cents a share are "reasonable." The retailer warned, however, that it continues to "experience expense pressure." Wal-Mart added 13 cents, or 0.3%, to close at $49.51.

Rival

Target

(TGT) - Get Report

posted a 9% rise in June same-store sales. The retailer also said it now expects second-quarter earnings of 58 cents a share, higher than the Thomson First Call consensus for EPS of 53 cents. Target gained 86 cents, or 1.6%, to $56.42.

Among other retailers,

Costco

(COST) - Get Report

said early Thursday that June comps rose 9% from a year ago, slightly better than expected, while

bebe stores

(BEBE)

reported growth of 31.4%, also beating estimates.

Wednesday night,

American Eagle

(AEOS)

and

Hot Topic

(HOTT)

reported better-than-expected same-store results, while

Aeropostale's

(ARO)

comps were light.

Shares of

Charles Schwab

(SCH)

rose 5.8% after the company said it has no interest in being sold. The statement ended two days of frenzied trading that took the stock up more than 10% before shares were halted around midday Thursday. Schwab ended up 70 cents at $12.68.

Pepsi Bottling

(PBG)

said second-quarter earnings rose 4% from a year ago to $148 million, or 59 cents a share, beating estimates by 3 cents. The company also raised its full-year earnings forecast. The stock added $1.83, or 6.5%, to close at $30.03.

After the bell Thursday,

Alcoa

(AA) - Get Report

became the first Dow component to report earnings. The aluminum company posted a profit of $460 million, or 52 cents a share, up from $404 million or 46 cents a share, a year ago. Revenue rose to $6.76 billion from $5.97 billion a year earlier. Analysts polled by Thomson First Call expected EPS of 45 cents on revenue of $6.64 billion. Alcoa finished up 9 cents, or 0.4%, at $26.09 ahead of the earnings report.

In economic news, the Labor Department said that initial jobless claims rose by 7,000 to 319,000 for the week ended July 2, in line with economists' expectations. The less volatile four-week moving average fell by 3,500 to 320,000, the lowest level in four months.

On Friday, the Labor Department will post nonfarm payroll data for June, expected to grow by 195,000. The unemployment rate is expected to remain unchanged at 5.1% as well.

To view Aaron Task's video take on today's market, click here

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