Shrugging off bad news that had pushed it down more than 245 points by late afternoon, the Dow Jones industrial average essentially broke even in heavy trading yesterday, heartening investors who had hoped that the blue-chip index wouldn't plummet after Wednesday's near-record surge.
"We were encouraged the Dow was able to hold onto its gains today," said Jane W Korhonen, a partner and senior analyst with Brown Investment Advisory & Trust Co.
The Dow fell 4.98 points, or 0.06 percent yesterday, an insignificant decline, especially in light of its 488-point gain, its second-greatest point gain ever, experts such as Korhonen said.
The Standard & Poor's 500 fell 4.75 points, or 0.56 percent, to 838.68. However, the Nasdaq composite index dropped 50.14 points, or 3.89 percent.
Trading volume was heavy: About 2.57 billion shares changed hands on the New York Stock Exchange, giving the Big Board its fourth-busiest day ever. The all-time high occurred Wednesday when 2.81 billion shares traded.
With the pummeling stocks had been taking this month, investors were hoping that Wednesday's huge surge might signal that a market bottom had been reached - if not the actual beginning of a new bull market. They also feared a resumption of this month's blood-letting.
But all that hinged on how stocks behaved yesterday: Continued carry-through with strong gains in the morning that held throughout the day might signal the start of a prolonged rally, while a small gain or loss might hint that the selling was stopping and a market bottom had been found, said William E. Lauer, chief investment officer of Chevy Chase Trust in Bethesda.
It was a positive sign that the Dow was able to rebound from a late-afternoon decline of just over 245 points, he said.
"The market is trying to right itself and is shrugging off bad news," Lauer said.
Among the bad news was a disclosure by AOL Time Warner Inc. that it was the target of a "fact-finding" investigation by the U.S. Securities and Exchange Commission. Analysts downgraded AOL shares, noting the inquiry and worries of slowing revenue growth at its American Online Internet unit.
After the implosions at Enron Corp. and WorldCom Inc., investors have been heavy sellers of stocks throughout this month, worrying that more scandals will emerge. During that time, the sell-off broadened from riskier shares to stocks in companies generally perceived as blue chip, experts say.
Underscoring the uncertainty was yesterday's decline in the Nasdaq, which was stung by a 10-percent sell-off in semiconductor stocks after one firm said it was cutting back on spending for new production equipment.
With other wild cards possibly out there, and worries about other potential scandals, "no one knows" which direction stocks will head, said Chevy Chase's Lauer.
Elsewhere on the broad market yesterday, the Russell 2000 index, a benchmark of small-cap stocks, fell 0.45 to 378.11, and the Wilshire 5000 total market index jumped lost 37.64 to 7,911.59.
The Sun-Bloomberg index of the top stocks in Maryland gained 1.80 to 172.02. FTI Consulting Inc. rose 9.05 to 38.97, and Sylvan Learning Systems Inc. added $2.02 to $16.19.
Chip stocks pulled technology stocks lower after Taiwan Semiconductor Manufacturing Co. said that its second-quarter profit rose sharply but it expects weaker demand in the third quarter. Its shares fell $2.06 to $9.08.
Intel Corp., the biggest semiconductor company, declined $1.22 to $17.48. Micron Technology Inc. dropped $2.55 to $19.20.
Among chip-equipment makers, Applied Materials Inc. fell $2.32 to $14.23, and KLA-Tencor Corp. shed $3.88 to $38.45. Novellus Systems Inc. dropped $2.97 to $24.30.
Microsoft Corp. fell $3.40 to $42.83. The largest software maker said it will boost research-and-development spending by 21 percent to $5.2 billion and hire 5,000 workers.
Cisco Systems Inc. fell $1.48 to $11.61.
Genuity Inc. plummeted $2.30 to 29 cents. The data-network operator defaulted on $3 billion in loans after Verizon Communications Inc. decided not to increase its stake in the company.
General Motors Corp. fell 83 cents to $43.92, and Whirlpool Corp. declined 34 cents to $54.91.
Yahoo! Inc. dropped $1.42 to $12.16 amid speculation that the SEC investigation into America Online may prompt a similar look at the accounting practices of the most-used Internet-search Web site, analysts said.
J.P. Morgan Chase slid 95 cents to $22.35. Citigroup finished the day up 6 cents at $29.65 after trading as low as $27.10.
Bausch & Lomb Inc. climbed $2.72 to $31.68 on earnings that were 5 cents a share higher than analysts were anticipating.
Home Depot Inc. slid $1.87 to $28.85 and Lowe's Cos. skidded $2.42 to $35.08 after an industry report showed sales of existing homes fell 11.7 percent.
McGraw Hill Co. Inc. surged $4.21 to $57.46 on earnings that exceeded forecasts.