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Stocks slip but still have best quarter since 1998

The stock market had a fitting end to a stellar but erratic third quarter as investors still ambivalent about the economy shuttled between bouts of buying and selling, the Associated Press reported.

Wall Street's major indexes ended the July-September period with big gains Wednesday as investors placed more bets that the recovery will keep gathering momentum. The Dow Jones industrials and Standard & Poor's 500 index both ended the quarter with gains of more than 15 percent, even as they pulled back modestly on the quarter's last day.

The gains didn't always come easily during the quarter, and the Dow's performance is proof. The average, which had its best three-month showing in nearly 11 years, came within 82 points of reclaiming 10,000, only to fall back as investors' optimism was chilled by news that housing and manufacturing weren't as strong as many had thought.

On the quarter's last day, stocks got an early lift from an improvement in the government's report on the second-quarter gross domestic product, then tumbled on news of a surprise drop in the September Chicago Purchasing Managers index, which measures Midwestern manufacturing.

Analysts who are generally upbeat about the market's prospects for the fourth quarter say the pattern is likely to hold: Bad news will hit the market, reminding investors of the economy's fragility, and stocks will slide. But within a few days, or even the same day, they'll recover as investors grab hold of the fact that no one expects the recovery, or stocks, to have an unbroken path upward.

"Any legitimate decline in the market is just seen as a buying opportunity," said David Waddell, senior investment strategist and CEO of Waddell & Assoc. "That pattern has continued now ever since the rally began."

The rally began in March, with the first signs that the economy might be recovering. The market's stats show how huge the rally has been:

- The Dow is up 15 percent for the quarter, its best gain since the fourth quarter of 1998. It's up 48.4 percent from its 12-year low of 6,547.05 in March. From a year ago, when the financial crisis worsened, the index is down 10.2 percent. The Dow is still down 21.4 percent from its peak of 14,164.53 in October 2007, but that's quite an improvement considering it fell 53.8 percent from that record.

- The S&P 500 index is up 15 percent for the quarter and 56.3 percent from March. It is down 9.1 percent from a year ago and 32.5 percent from its high of 1,565.15 in October 2007.

- The Nasdaq composite index, which has a big concentration of technology stocks, was the best performer. It rose 15.7 percent in the quarter and is up 67.3 percent from March.

On Wednesday, the Dow ended down 29.92, or 0.3 percent, at 9,712.28 after falling nearly 134 points. The S&P 500 index fell 3.53, or 0.3 percent, to 1,057.08. The Nasdaq fell 1.62, or 0.1 percent, to 2,122.42.

The Russell 2000 index of smaller companies fell 6.17, or 1 percent, to 604.28.

Three stocks fell for every two that rose on the New York Stock Exchange, where consolidated volume came to 6.4 billion shares compared with 5 billion shares traded Tuesday.

The next test for the market comes at the very start of the fourth quarter, with the release of the Institute for Supply Management report on manufacturing during September, and the government's jobs report for the month on Friday.

The market could have trouble continuing its advance if economic reports don't boost optimism.

Steve Hagenbuckle, managing principal for TerraCap Partners in New York, expects that corporate earnings will likely exceed expectations again for the third quarter and help boost the market.

"The corporate numbers will continue to be met or exceeded so I think we'll continue to run up," he said.

But many investors have doubts. A recent survey by the American Association of Individual Investors found that bearishness among investors stood at 44.5 percent, above the long-term average of 30 percent.

As a result, many investors are still paddling to safer investments. In August, investors funneled $42.9 billion into bond funds and only $3.9 billion into stock funds, according to the Investment Company Institute, the mutual fund trade group.

Some of the hardest-hit stocks in the market's slide that intensified a year ago posted spectacular gains in the third quarter. Financial stocks led the 10 industry groups that make up the S&P 500 index with a gain of 25 percent. Industrials rose about 21 percent, as did materials companies like chemical producers and paper makers.

Some stocks logged enormous advances for the quarter. Newspaper publisher Gannett Inc. surged 250 percent, while Hartford Financial Services Group Inc. jumped 123 percent. There were exceptions. Commercial lender CIT Group Inc. tumbled 43.7 percent as investors worried about its stability. Sprint Nextel Corp. slid 17.9 percent.

The month of September wound up being far better for the market than many people anticipated.

Stocks had tumbled on September 1 as traders worried about what might happen during that month, which has historically been the worst of the year for stocks. But the slide many had feared never materialized.

The S&P 500 index finished this September with a gain of 3.6 percent, far better than the average loss of 1.2 percent it posted in Septembers going back to 1929. It wasn't hard to beat the dismal performance of September last year, when it skidded 9.1 percent as credit markets froze following the collapse of Lehman Brothers Holdings Inc.

October tends to be a better month on average for the market, but it still strikes fear in many trading rooms since it's home to the crashes of 1929 and 1987. Last year, it also saw the Dow plunge 1,874.19 points, or 18.2 percent, in just one week.


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