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Article posted on 08/25/10
Author: Jay Birch

Dow Posts Slight Gain after Dropping Early

The Dow Jones industrial average, after dropping more than 100 points earlier Wednesday, finished the day with a net gain of 20 points, the first time the Dow has closed higher in four days. The rough start to the day was caused in part by poor reports on new home sales and durable goods orders released Tuesday. The Dow ended the day up .2 percent, closing at 10,060.

The Standard & Poor's 500, meanwhile, closed up .3 percent at 1,055, and the Nasdaq Composite Index closed up .8 percent at 2,141. Stocks posting gains outpaced losers by a three to two ratio, volume on the day came in at 1.1 billion shares.

The Dow dropped below the 10,000 mark briefly for the second straight day, the first time since July 20th it has fallen below that mark. Investors began their day with news that new home sales in July fell to the lowest level on record, further evidence that the housing market is slowing considerably since the expiration of federal homebuyer tax credits. The Commerce Department released a separate report showing that orders for durable goods grew significantly less than expected, disappointing investors who had believed the manufacturing sector was gaining steam.

The market has been volatile for weeks as the economy struggles to gain a firm foundation of recovery. Widespread concern over another recession in the last week sparked huge losses for the last four days before today's slight gain.

The new home sales report showed sales slipped by 12.4 percent in July to a seasonally adjusted annual rate of 276,000, the slowest pace on records dating back to 1963 and worse than the pace forecast by economists in a recent Reuters poll. Yesterday, the National Association of Realtors, in its existing home sales report, said that that portion of the market fell to a 15 year low in July.

A major concern affecting stock markets, according to many investors, is that continued struggles in the economy could begin to have a major impact on corporate earnings forecasts, which would then further hinder stock trading. Interest rates dropped sharply in response to the home sales and durable goods orders reports, then picked back up slightly as investors began shopping around for bargains.

The 10 year Treasury note yield reached a level not seen since last January, falling to 2.42 percent early in the day before recovering back to 2.53 percent. The yield for the 10 year Treasury is used as a benchmark for interest rates for mortgages and other consumer loans. Despite near historically low interest rates, the housing market has struggled since federal tax credits for homebuyers expired in April. Continued record unemployment levels, combined with stricter lending standards from banks still reeling from the mortgage-backed securities crisis, have kept many potential buyers on the fence.

Globally, Japanese and European stock indexes closed with small losses, after the yen hit a new fifteen year high against the US dollar. The high yen impacts profitability for the country's major exporters.

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