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Fears about earnings and Europe ease a day after the stock markets' worst loss of the year
NEW YORK (AP) ' Investor fear calmed on both sides of the Atlantic on Wednesday, one day after the worst plunge on Wall Street this year.
In the United States, Alcoa reported a surprise profit after the stock market closed on Tuesday, raising hope that corporate earnings may not be as weak as analysts think. More reports will trickle out over the next few weeks.
And in Europe, borrowing costs for Spain edged down after nearly reaching 6 percent the day before. Seven percent is generally considered the point at which countries must seek bailouts.
The result was a U-turn on Wall Street. The Dow Jones industrial average shot up 100 points in early trading, to 12,815. It had a 214-point drop Tuesday, its biggest this year and the fifth straight day of declines.
European markets rose, too. Stocks climbed roughly 1 percent in the major capitals after losing 2 to 3 percent the day before. The dollar and Treasury prices fell.
The broader Standard & Poor's 500 rose 13 points to 1,371. The Nasdaq composite index re-crossed the closely watched 3,000 mark, rising 26 points to 3,017.
Alcoa's stock soared 8 percent in the morning, investors' first chance to react to its report that it had turned a quarterly profit and handily beat the expectations of Wall Street analysts, who were predicting a loss. Since Alcoa is the first company in the Dow to report earnings, its results have a greater ability to propel the market than companies that report later.
Investors on Wednesday seemed to latch onto a few pieces of good news out of Europe. Spain's borrowing rate on its 10-year bonds dropped back to 5.87 percent, down from Tuesday's four-month high of 5.93 percent. Seven percent is usually considered the point at which a country can longer afford to borrow money.
But there were other signs that problems in Europe are still hibernating rather than solved. Spain's borrowing costs are still dangerously high. Italy sold 12-month bonds but was forced to pay more than double the interest rate compared to last month, a concession to investors who are nervous about Europe's health. Even Germany, whose bonds are considered a much safer investment, struggled in its own debt sale. Germany failed to sell all the 10-year bonds that it intended to on the open market.
Upcoming elections in Greece and France also threaten to unravel some of the uneasy peace that has been reached between the weak and the strong countries in Europe. Opposition candidates have promised they won't go along so easily with the European deals that have been hammered out calling for weaker countries like Greece to cut spending if they are to continue to get rescue funds. Uncertainty in Greece went to a new level Wednesday when the country announced it will hold parliamentary elections months ahead of schedule.
In Cleveland, Planned Financial Services CEO Frank Fantozzi hoped that Alcoa's good earnings portended more strong reports. But he was still keeping a close eye on Europe.
"You have people kind of on pins and needles right now," Fantozzi said. "Europe is spiraling into recession. The question is, is it going to ripple across the Atlantic to the United States."
The Dow's 550-point plunge of the previous five days is small potatoes compared to last summer's frightening swings, including an eight-day plunge when the market shed 858 points as Congress bickered about government debt limits and the S&P prepared to downgrade the U.S. government's debt rating.
In recent weeks, Europe's debt crisis and concerns about U.S. earnings haven't been the only problems. There are also signs that jobs growth is slowing and that the Federal Reserve is disinclined to pump more money into the economy. Some of the sell-off is also probably from investors trying to get out of the market now with their first-quarter gains still intact. If the Dow closes higher today, it will be the first time since April 2 and only the second gain since the second quarter began.
Despite the uncertain second quarter, the first quarter was stellar. The market rose steadily, and that has fueled its ability to handle recent negative news.
"It's like a person," Fantozzi said. "If you're feeling good overall and a couple negative things happen, you just shrug it off. If you're feeling lousy overall and then you get some good news, you still feel lousy."
Investors remain concerned that high gas prices could rekindle a recession, forcing companies to raise prices and crimping household budgets.
Oil prices inched up toward $102 per barrel Wednesday on the New York Mercantile Exchange, reversing Tuesday's decline. Though they're down from the nearly $110 per barrel reached last month, they're still above October's price of $75.
The rising prices are partly because of international tension over Iran's nuclear program, with new talks scheduled to begin Saturday. Iran, which has already cut off shipments to several European countries, said Wednesday it had stopped shipping to Germany.
Among stocks making big moves:
'Avon rose nearly 3 percent, two days after naming a new CEO that it hopes will turn around a company plagued by bribery allegations and an unwanted takeover bid.
'Owens-Illinois Inc., which makes glass containers for the food and beverage industries, jumped 10 percent. The company said it expects its earnings per share to surge 35 percent because of more productive manufacturing methods and cost cuts.