Stocks bounce back for day, down 4.4% for Q3

U.S. stocks recovered more than half their Monday losses as investors renewed hope the government would reach an agreement on an economic bailout package, but share prices nonetheless ended the third quarter with hefty losses.

With a 485.21 gain to 10,850.66, up 4.68% from the previous day’s close, the Dow Jones industrial average made up much of the ground lost when Congress rejected the Bush administration’s $700 billion financial rescue plan. For the quarter, however, the blue chip barometer lost 499.27 points, or 4.39%.

The Standard & Poor’s 500 was up 58.35, or 5.27%, at 1,164.74; and the Nasdaq composite rose 98.6, or 4.97%, closing at 2,082.33.. For the quarter the S&P 500 was off 115.27 points, or 9%, while the Nasdaq composite ended the quarter off 210.65 points, or 9.1%. All numbers are preliminary.

With the prospect of political help on the way, some investors moved out of the safety of government paper, sending the yield on U.S. Treasuries 10-year bond up 19.5 basis points to 3.827.

Even so, sentiment remained cautious. In Europe, the euro fell the most against the U.S. dollar since the introduction of the shared currency in 1999, down 2.5% to $1.4074 earlier this afternoon, spurred by the move of France and Belgium for a state-backed rescue of Dexia SA.

“It’s not the first time we’ve seen (quarterly) returns like this,” said Steve Foresti, managing director and head of the investment research group at Wilshire Consulting. “What’s made the last few days somewhat unique is the sense of fear. That would characterize what occurred yesterday, and today’s market reflects some of that.”

Mr. Foresti said that while the equity market “kicks off very valuable signals in terms of investor sentiment and tolerance for risk,” the big story right now is in the still-frozen credit markets. Indeed, despite the recovery in share prices, investors continued to seek safe havens in Treasuries.

“Nobody’s willing to lend and so the government is the only game in town for short-term capital,” he added.

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