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Stocks rebound from lows as some bears cash out

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Wall Street pulled off a steep turnaround Friday as major market indexes shot up from their midday lows to close with small gains.

The Dow Jones industrial average added 10.05 points, or 0.1%, to 10,012.23 after being down as much as 167 points following another day of heavy selling overseas on fears about mounting fiscal crises in Greece, Spain and Portugal.

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For the second day in a row the Dow avoided finishing below the psychologically significant 10,000 mark. But for the week the index fell 0.5%, its fourth straight losing week. It’s off 4% this year. Traders said some of the abrupt turn Friday reflected buying by “short sellers” who had correctly bet on falling share prices in recent weeks and now were covering their bets, repurchasing borrowed shares that they had sold.

As often happens when many market players are just following the trend, a sudden rally can feed on itself, fueling more short-covering, said Joe Saluzzi at Themis Trading in Chatham, N.J.

At their lows on Friday some broader U.S. market indexes were down more than 10% from their recent 52-week highs, crossing the threshold of a classic “correction.” Since the rally began last March all short-term pullbacks have shaved less than 10% from most major indexes before the upswing has resumed.

Once again, nearing or crossing the 10% threshold proved to be an invitation to buy rather than a trigger for more selling. The Russell 2,000 small-stock index, which at its low on Friday was down 10.6% from the recent closing high reached on Jan. 19, finished the session up 0.6% to 592.98. That left it off 8.6% from Jan. 19.

“I think a lot of guys got caught short” as the market resurged Friday, Saluzzi said. He is bearish in the near-term because he thinks housing and unemployment remain huge problems for the economy.

Even so, as Friday demonstrated, “The bulls fight tough,” he said.

-- Tom Petruno

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