Stocks rise on small but positive economic signs (AP)

NEW YORK – Wall Street's wildest week since 2008 continued with another 300-point move for the Dow on Thursday. This time, stocks shot up after investors saw small signs that the economy isn't headed into another recession.

Fewer Americans joined the unemployment line last week and a technology bellwether said revenue could grow faster this quarter than analysts expected. The news pushed gold prices down from record highs and sent prices on long-term Treasurys down.

The Dow Jones industrial average rose 283 points, or 2.6 percent, to 11,003 at 12:38 p.m. in New York. It had been up as many as 309 points a little before 11 a.m.

During a calm market, a 300 point move would rank as the Dow's biggest in months. This week, it's the smallest. The Dow has been volatile all week. On Monday, it plunged 634 points only to gain 429 points Tuesday and sink 519 points Wednesday. It's the first time that the Dow has moved by more than 400 points in three straight days since November 2008, when markets were tumbling during the financial crisis.

Carlton Neel, who manages about $2 billion as a senior portfolio manager at Virtus Investment Partners said investors are so scared of being the last one out of the market in a downturn or the last one in during a rally that they are stampeding in herds, creating more volatility.

"Fear tends to be a much more powerful emotion, and the sell-offs tend to be more violent than the rallies," he said. "But people are worried about missing the bottom, so you will have a few melt-ups along the way." That's because memories of the last meltdown in 2008 are still fresh in the mind of many investors.

Thursday's gain came after the government said the number of people filing for unemployment benefits for the first time fell to 395,000 last week, down 7,000 from a week earlier. It's the first time the number has dropped below 400,000 in four months.

Analysts said it may be a sign that the job market is slowly improving after its three-month slump. Job growth slowed to an average of 72,000 in May, June and July. In the previous three months, employers added 215,000 jobs per month, on average.

"It's the first scrap of economic data we've had recently that says the idea that we're going into another recession may be overdone," Neel said.

In the last few weeks, investors have grown more worried about the economy. The government said last month that it grew at its slowest pace in the first half of 2011 since the recession ended in 2009. Unemployment is still above 9 percent.

The S&P 500 index rose 33, or 3 percent, to 1,154. The Nasdaq composite index rose 74, or 3.1 percent, to 2,456.

Technology stocks helped lead stocks higher. Cisco Systems Inc. profit for the latest quarter topped analysts' expectations. Cisco is considered a bellwether for the tech industry because it is the world's largest maker of computer networking equipment. The company also said revenue may grow more quickly in the current quarter than analysts were anticipating. Cisco rose 16.5 percent. As a group, tech stocks in the S&P 500 rose 3.6 percent.

Financial stocks also rebounded from their steep drop Wednesday, up 4.1 percent after a 7.1 percent drop a day earlier.

The leaders of France and Germany, the region's biggest economies, said they will meet next week to talk about how to solve Europe's financial difficulties. Worries that Europe's debt problems could hurt the banks that own European government bonds have weighed heavily on financial stocks and the broader market. Pain for European banks could lead to more trouble for the U.S. banking industry and economy because the global financial industry is so closely linked. That has been one reason stocks have declined in the last several weeks.

Reports also circulated that European markets were considering a ban on selling stocks short, which is a way that traders bet a stock will fall.

Rumors have been a big force in driving the market in the last week. On Friday, speculation that Standard & Poor's may downgrade the U.S. from its top AAA credit rating helped knock down stocks. It turned out to be correct.

This week, speculation has centered on European banks, French ones in particular. The head of France's central bank said Thursday that the country's banks are solid and blamed "unfounded rumors" for big drops in their stocks.

In the U.S., media conglomerate News Corp., which owns Fox News and The Wall Street Journal, rose 19.1 percent. It reported earnings late Wednesday that were better than analysts expected.

Prices for longer-term Treasurys fell, as investors felt less need to put their money in investments considered safe. The yield on the 10-year Treasury note rose to 2.21 percent from 2.11 percent late Wednesday. A bond's yield rises when its price falls.

Investors had been pouring into Treasurys earlier in the week, and they briefly knocked the 10-year yield to a record low of 2.03 percent Tuesday afternoon. Treasurys have held onto their reputation as a safe place to put money even after S&P cut the U.S. credit rating to AA+.

Gold also benefited early this week from buyers looking for something safe. It rose above $1,801 per ounce for the first time on Wednesday as stock markets tumbled around the world. But it fell to $1,771.10 Thursday.

CME Group raised the amount of money that investors must put up to buy a gold contract on its COMEX exchange by 22 percent late Wednesday, driving prices off all-time highs above $1,800 per ounce as some investors were forced out.

The Dow's climb on Thursday pulls the average further away from bear market territory: The Dow ended Wednesday at 16.3 percent below its high for the year, set on April 29. A drop of 20 percent would mean the bull market that began in March 2009 has turned into a bear, a long period of stock declines.

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Debt deal offers only small blessings for economy (Reuters)

WASHINGTON (Reuters) – The tentative deal to avoid a crushing debt default is at best a mild relief for the U.S. economy that nearly stalled in the first half of the year and has yet to show signs of any realistic pickup.

The plan for $2.4 trillion in spending cuts over a decade, if backed by lawmakers, would help lift some of the uncertainty that has weighed on investors, businesses and consumers unsettled by talk about a possible new and deep U.S. financial meltdown.

Still, it does not decisively remove the threat that the nation's AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating.

"This will have minimal impact on the economy. The cuts are not there for the first couple of years, which really makes you wonder if they're really going to happen at all," said Peter Morici, an economics professor at the University of Maryland.

The prospect of spending cuts is the last thing the U.S. economy needs right now, many commentators say.

Economists were stunned on Friday when data showed the U.S. economy grew just 0.4 percent in the first three months of this year -- perilously close to contraction -- and picked up unimpressively to 1.3 percent in the second quarter.

Against the backdrop of the weak economic recovery, the divided political parties in Congress appear to have agreed on one thing early on in their dispute over how to raise the U.S. debt ceiling: that spending cuts to narrow the deficit should be phased in slowly. They will be phased in from 2013.

President Barack Obama told reporters on Sunday that the initial discretionary cuts, expected to be about $917 billion, "wouldn't happen so abruptly that they'd be a drag on a fragile economy." He added that "job-creating" investments in education and research would be preserved.

But the bulk of the austerity has yet to be defined.

About $1.5 trillion of the planned savings will be decided by a bipartisan congressional commission, leaving unanswered the question as to whether the United States has the political will to tame the country's growing debt pile once and for all.

Troy Davig, U.S. economist at Barclays Capital, estimated that the deal would only cut $25-30 billion from government spending in the first year, which could shave about a tenth of a percentage point off economic growth.

"It's not a major drag on growth but when the economy is only growing a point and a half, a lot of economists feel that this is not the right time to be finding fiscal restraint. We will be shifting from massive stimulus to massive restraint."

Steeper and faster spending cuts could have dealt a knockout blow to an economy reeling from high fuel prices, bad weather, Japan's earthquake and a depressed housing market, plus a labor market that shows few signs of recovery.

LITTLE SCOPE FOR STIMULUS

Proposals discussed just a week ago included possible new fiscal stimulus measures, such as extending payroll tax cuts for employees and offering them to employers as well.

There appeared to be no room for them in Sunday's preliminary deal which is expected to be voted on in the Senate on Monday and sent to the House of Representatives for approval. The bipartisan panel, which must draft more cuts by November, could revisit the issue.

There could be some relief among U.S. employers and consumers that taxes won't rise under the new, hard-fought deal and that the worst-case scenario has been avoided.

The talks have been punctuated by warnings from the Obama administration that financial chaos would ensue if the $14.3 trillion federal borrowing limit is not raised by Tuesday.

That angst has added to a pile of worries slowing consumer spending decisions such as car purchases, according to Detroit executives. Existing home sales in June fell sharply due a big jump in canceled sales contracts.

Obama, too, said he has been concerned about the debt limit battle's impact on consumer and business confidence. He said he hoped Sunday's deal "will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy."

Any relief, however, is likely to be short-lived. U.S. jobs data on Friday will probably prove another reminder of the weak U.S. economy. Unemployment is expected to remain at 9.2 percent, according to a Reuters poll.

The budget deal "does nothing to restore household and corporate confidence," said Mohammed El-Erian, chief executive of bond fund investment giant PIMCO.

"So unemployment will be higher than it would have been otherwise, growth will be lower than it would be otherwise, and inequality will be worse than it would be otherwise," El-Erian told ABC's This Week with Christiane Amanpour.

Just as Washington's political leaders have run out of money to throw at the U.S. economy, the Federal Reserve looks lacking in ammunition too.

The U.S. central bank waged an massive experiment in monetary policy over the last few years to prevent the 2007-2009 recession from spiraling into a depression, slashing interest rates to zero and pumping $2.3 trillion into the ailing economy by buying debt,

The Federal Reserve is not expected to rush in to make up for the loss of any stimulus to boost growth.

Atlanta Federal Reserve President Dennis Lockhart said on Friday there would be a "very high bar" for more stimulus.

At least the deal taking shape in Washington would push the scary prospect of a U.S. debt default out until after the 2012 presidential election. But investors worldwide will still worry about the ability of the United States to avoid future downgrades of its debt, a move that would probably push up borrowing costs and act as yet another drag on the economy.

"Talk about kicking the can down the road, this is probably the biggest can that's ever been kicked -- appointing another commission to do the heavy lifting another day," Yale University economist Stephen Roach told Reuters Insider.

(Reporting by David Lawder; Editing by Anthony Boadle)

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Small plane strays into Camp David airspace while Obama there (Reuters)

WASHINGTON (Reuters) – A small plane wandered into the airspace around Camp David, Maryland, on Saturday while President Barack Obama was there, prompting an F-15 fighter jet to scramble to intercept it, authorities said.

The civilian plane, a two-seater that was out of radio communication, got within 6 miles of the presidential retreat before being intercepted, the North American Aerospace Defense Command (NORAD) said in a statement.

The fighter jet guided the plane to a landing at nearby Hagerstown, Maryland, where it landed without incident.

"He (the pilot) was met by authorities," NORAD spokeswoman Angela Young said, without giving further details on why the plane may have strayed into the area.

It was the second incident of a plane straying into the Camp's airspace in recent weeks. On June 11 while Obama was there, fighter jets scrambled to guide another small plane away from the area without incident.

Camp David has been a presidential weekend and holiday retreat in the nearby Maryland mountains for decades. Obama rarely goes there but flew up from Washington on Friday ahead of the Fourth of July holiday weekend.

(Writing by Cynthia Johnston; Editing by Greg McCune)

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