Stocks staged a remarkable recovery late in the day while traders said the volume of buying was the highest for any session in several months
For a time it looked as if yesterday would be another Black Friday on Wall Street, as the Dow Jones Industrial Average suffered its second three-digit fall in succession to touch 9,500 in morning trading, a low not seen since November.
The tech-heavy Nasdaq dropped to its lowest point since September and the S&P average of the 500 most popular stocks also fell to its lowest level since the aftermath of the September 11th attacks.
But stocks staged a remarkable recovery late in the day, helped by a surprise reduction in the unemployment rate, allowing investors to hope that the fear-ridden market had hit a bottom.
Traders said the volume of buying was the highest for any session in several months.
The latest hit for investors came from Intel, which lowered its second-quarter forecast after the market closed on Thursday, reducing hopes of a rebound in technology stocks. Intel shares tumbled 18 per cent after the opening.
The world's biggest chipmaker blamed weaker-than-forecast demand for personal computers in Europe for a fall in anticipated revenue to between $6.2 billion (€6.6 billion) and $6.5 billion from $6.4 billion to $7 billion.
The company also said it expected gross profit margin of around 49 per cent rather than the 53 per cent it had predicted in April.
Intel stocks had already fallen on Thursday after Merrill Lynch analyst Mr Joe Osha downgraded the chip sector, pushing the Nasdaq lower.
Shares of the giant conglomerate Tyco International dropped to a six-year low yesterday amid concerns that the initial public offering of its CIT Group financial services arm would be delayed. Shares were off 29 per cent at Tyco, which is under investigation by the Securities Exchange Commission (SEC) for misuse of corporate funds by directors.
The giant drug company Biogen saw its shares sink 12 per cent after the company lowered second-quarter earnings guidance on slower-than-expected sales growth for Avonex, its treatment for multiple sclerosis.
Apart from a respite on Wednesday, when all the indices finished higher for the first time in two weeks, the market had fallen steadily since Monday, due to a combination of worries about earnings and weak retail sales. Traders also cited loss of faith in Wall Street over the stock collapse at several scandal-ridden corporations, and instability abroad, particularly India and Pakistan.
One remarkable feature of the market this week has been its extreme volatility, often taken to signal that it has reached a bottom. There was, however, no sign of the fear being "flushed out" of the market yet, said Mr Phil LeBeau of CBOE in Chicago, which measures market volatility.
"We have fear - fear of festering faraway places, fear of an ongoing tech wreck, fear of a faltering dollar, fear of the next corporate scandal, fear of fear itself," said Mr Larry Wachtel, market strategist at Prudential Securities, after the Intel announcement.
Chipmaker RF Micro Devices also saw its shares fall 32 per cent to a 52-week low after the company cut its earnings and revenue forecasts for the current quarter.
While the US unemployment rate fell to 5.8 per cent from 6 per cent - analysts had predicted it would rise - sluggish job growth in May dampened investors' enthusiasm. The Labour Department reported that non-farm payrolls climbed 41,000 compared with economists' predictions of an increase of 65,000.
Wholesale inventories dropped a surprisingly sharp 0.7 per cent. Manufacturers cut 19,000 jobs last month on top of 22,000 in April. The data indicate that companies are concerned about the strength and duration of the recovery and are reluctant to increase their payrolls.
