Dow’s best day since Aug. 11

Assosicated Press

NEW YORK

Buyers returned to the stock market Tuesday after deciding the pounding stocks have taken the past month made them too cheap to resist.

The Dow Jones industrial average jumped 322 points, its best day since Aug. 11, when it gained 423. The Dow dipped about 60 points shortly after an earthquake hit the East Coast at 1:51 p.m. but recovered within 20 minutes and soared even higher in the last two hours of trading.

James Paulsen, chief investment strategist at Wells Capital Management, said the beating stocks have taken since late July suggested investors were preparing for a recession. They questioned that bleak outlook Tuesday after a survey of manufacturing in the Southeast from the Federal Reserve Bank of Richmond, Va. pointed to a slowdown, not a recession. “And when people are preparing for a recession, slow growth is good right now.”

The Dow, which tracks 30 huge U.S. companies including IBM Corp. and General Electric Co., closed with a gain of 3 percent at 11,176.76. Indexes that track smaller stocks did even better, a sign that investors were more willing to take on risk.

The S&P 500 index rose 38.53 points, or 3.4 percent, to 1,162.35. The Nasdaq composite, which tracks mainly technology companies, rose 100.68 points, or 4.3 percent, to 2,446.06. The Russell 2000 index of smaller U.S. companies gained even more, 4.9 percent.

When stocks plunged Thursday, the reverse was true. The Dow fell 419 points but only 3.7 percent. The other three indexes fell more. The Russell 2000 lost the most, 5.9 percent.

As of Monday, the Standard & Poor’s 500 index had lost 16 percent over four weeks as investors worried that the U.S. might enter another recession and as Europe’s debt crisis flared up again. That meant the average company in the index was priced at just 11 times its expected earnings per share for 2011. “That’s too low if you’re not in a recession,” Paulsen said. The historical average for the S&P’s P/E ratio is 15. After Tuesday’s gain, the S&P is down 14 percent since July 22 and 15 percent since it hit its high for year on April 29.

The biggest Dow gainer was Exxon Mobil Corp., which rose 4.9 percent. Chevron Corp. rose 4.3 percent. Energy stocks got a push from a $1.02 increase in the price of oil, to $85.44 a barrel.

Bank of America Corp. was the only Dow 30 stock to fall. It lost 1.9 percent Tuesday and is down 35 percent this month because investors have become increasingly worried about the bank’s ability to raise capital and about its liabilities related to subprime mortgages.