Investors See a Glimmer and Shares Soar Worldwide

A few clues that the economy’s downward spiral might be slowing galvanized Wall Street on Thursday and sent the stock market soaring for the second time this week.

Investors searching for relief from a relentless march of bad economic news found wisps of hope in developments that, not many months ago, would have been regarded as alarming. The news, by and large, was bad — just not quite as bad as feared.

General Electric, the blue-chip corporation, was stripped of its triple-A credit rating, an emblem of business prowess it proudly held since 1956. But its rating fell just one notch, less than some analysts predicted. Shares of G.E. soared 13 percent.

The Commerce Department reported that retail sales fell slightly in February — again, less than forecast. And the head of the beleaguered Bank of America said the lender probably would not need more government money, but other banks might.

Less bad was good enough. The Dow Jones industrial average jumped 239.66 points, or 3.46 percent, to 7,170.06. The Standard & Poor’s 500-stock index leaped 29.38 points, or 4.07 percent, to 750.74. The Nasdaq composite index rose 54.46 points, or 3.97 percent, to 1,426.10.

Since Monday, when the market fell to its lowest point in 12 years, indexes have soared roughly 10 percent, their best run since November. But few experts were willing to call an end to the bear market, which has cut the Dow in half since its October 2007 peak. Indeed, many analysts predicted that this rally, like others before it, would fizzle before the market stages a lasting recovery. Economists cautioned that the economy was not about to turn a corner anytime soon, even though the numbers suggested that consumers were not entirely in a bunker mentality.

But some saw signs of a subtle shift in investor psychology, a willingness to believe, even for a few days, that Wall Street’s worst fears might be overblown.

“When the markets have been battered as much as they have, any little shred of positive news is greeted with great cheer,” said Marc D. Stern, chief investment officer at Bessemer Trust.

The stock market, Mr. Stern said, seems to be entering a new phase, in which investors reconsider their despairing views about the economy and corporate profits. He said the market could fall again, though he did not expect as many “sharp free falls.” Usually the stock market starts trending higher before the economy recovers.

News that the ratings agency Standard & Poor’s cut G.E.’s credit rating one notch calmed fears that the giant company would be toppled by the potential losses in its finance arm. G.E., the report concluded, is not a deeply troubled bank in disguise. “We believe,” it said, “that G.E.’s cash generation capabilities remain fundamentally strong — even in the face of enormous global economic headwinds.”

Bank of America rose 19 percent. Other financial shares also gained. The S.& P. 500 Financial Index rallied 10 percent, bringing its gain for the week to 33 percent.

Stocks opened lower, reflecting early weakness in overseas markets, but by 10 a.m. the market was in positive territory. The momentum built throughout the day and spread across all sectors.

Financials were bolstered after Kenneth D. Lewis, the chief executive of Bank of America, said the bank made a profit in the first two months of the year and predicted that it would be profitable for all of 2009. His remarks came after similarly optimistic statements this week by Citigroup and JPMorgan Chase.

“Some of the government’s rescue programs are starting to work — that’s what we’re seeing,” said Edward Yardeni, an independent investment strategist. “There are some substantial developments behind this rally that are encouraging.”

Shares of many department stores ended higher after the Commerce Department offered a note of hope from the battered retail sector. It reported that retail sales fell slightly less than expected in February, by 0.1 percent from January. That was better than economists’ predictions of a 0.5 percent drop.

Investors even bid up shares of the troubled automaker General Motors, which said its need for more billions in federal aid was not as imminent as earlier thought. General Motors shares rose 17.2 percent, to $2.18, after the car company said that it would not immediately need the $2 billion in federal aid that it had previously requested for March.

Still, some specialists said the incipient rally is reminiscent of the aborted upturn that began in mid-November after stocks had tumbled to their lowest level in 11 years. The S.& P. 500 climbed 24 percent from Nov. 20 to Jan. 6 before it fell in the last two months.

Market analysts say history shows that the strongest stock-market rallies take place amid bear markets as investors search for any sign of good news. But those rallies generally fade, as it becomes clear that economic difficulties will persist for longer than many had hoped for.

“There is nothing new here, every serious bear market has rallies like this,” said James L. Melcher, president of Balestra Capital, a hedge fund, which is betting that the markets deteriorate further.

The nation’s banks, Mr. Melcher noted, may be making money on an operating basis by making new loans with funds borrowed from the Federal Reserve with interest rates approaching zero, given the Fed’s easy-money policies to combat the credit crisis. But all the bad loans and toxic assets from poor decisions in the past are still on their books, he said, and reckoning will come due eventually.

A recovery is not around the corner, economists say, but there is a chance when it comes, the rebound will be fairly robust.

Nick Bloom, an economist at Stanford University, said that a declining, though still high, volatility in stock markets and “reasonably good” federal policies suggested that the economy should be able to avoid the long stagnation of Japan in the 1990s or the Great Depression.

Mr. Bloom, who has studied 16 financial crises before the current one, said the recovery, which he expected in late 2009 or early 2010, should be fairly rapid.

Still, Mr. Bloom cautioned, his comparative optimism depends on solid policy steps to ease the credit crisis and restore confidence.

On Wall Street, optimism has been scarce recently, and the several-day rally was greeted with relief, if skeptically.

“The only thing you can say right now is that this was long overdue,” said Ryan Larson, head equity trader at Voyageur Asset Management. “The last several weeks there’s been a bloodbath of selling. Whether this is the bottom or not, nobody’s going to know for months to come. At least for the short term, we’re seeing some very positive signs.”

Vikas Bajaj contributed reporting.