Stocks rebound from sharp sell-off

NEW YORK - Wall Street capped a week of remarkable volatility with a big advance Thursday that left stocks higher for the week but didn't silence all of investors' concerns about the economy and the financial system.

Bargain-hunting and a milder-than-expected drop in a regional manufacturing report helped leaven stocks Thursday. The Dow Jones industrial average rose about 260 points on the day, giving the blue chips a gain of more than 3 percent for the week. Broader indexes finished the week with gains of 2 percent to 3 percent. The markets are closed for Good Friday.

A week that opened with fearful questions over the soundness of the financial system following the near collapse of Bear Stearns Cos. ended on a more upbeat note, thanks in part to the Federal Reserve's efforts to inject both liquidity and calm into the markets.

The central bank not only again deployed its primary tool for stimulating economic activity - an interest rate cut - but also took several steps this week aimed at oiling the troubled credit markets, making it easier for banks to breathe. Policymakers said they would loan directly to investment banks and accept as collateral much of the now-shunned debt that is backed by mortgages. A spike in defaults on home loans has made many financial players hesitant to extend credit.

But while many investors praised the Fed's unusual steps - including the deal it brokered for JPMorgan Chase & Co. to buy a liquidity-starved Bear Stearns for a fraction of its value only a week ago - many on Wall Street still hung onto some misgivings about the banking system and the economy.

Economic readings Thursday exemplified the mixed signals investors are receiving. The Labor Department said the number of newly laid off workers filing for unemployment benefits rose last week by a more-than-anticipated 22,000 to 378,000. That level is the highest in nearly two months. Meanwhile, the Conference Board said its index of leading economic indicators fell, as expected, for the fifth straight month in February.

But Wall Street found reason to buy back into stocks after a sell-off Wednesday when the Philadelphia Fed said manufacturing activity is dropping in March by less than it did in February, and by less than many economists anticipated.

And another day of sharp declines in commodities prices gave investors some hope that lower energy and food prices might boost consumers' discretionary spending and ease inflation concerns. Crude oil fell, while gold prices declined sharply.

Still, the markets are apt to stay volatile for some time, as investors digest news on the economy and the troubled financial sector.