Surge keeps S&P from brink of bear market

A late afternoon surge capped another wild day on Wall Street Tuesday, bringing the Standard & Poor's 500 Index back from the brink of bear market territory. Stocks jumped on reports that European officials were working on a joint effort to prop up the region's struggling banks.

The Dow Jones industrial average closed with a gain of 153, or 1.44 percent. It was down for the whole day before turning positive just 10 minutes before the closing bell, ending trading at 10,808.71.

Indexes opened sharply lower as traders worried that Greece could be edging closer to default. Stocks pared their losses at midday after Federal Reserve Chairman Ben Bernanke told a congressional panel that the central bank could take more steps to stimulate the economy, then slumped again in the afternoon.

At 3:25 p.m., the market began rising quickly after reports that European financial ministers were working on a way to coordinate their efforts to support European banks.

The S&P 500 rose 24.72 to 1,123.95. It had been down as many as 24 points in morning trading, 20 percent below its April peak. Had the index closed with a decline that size, it would have met the typical definition of a bear market.

The difference between a stock market "correction," or decline of 10 percent to less than 20 percent from a peak, and a bear market may seem small. But the difference is psychologically potent, said Michael Zweig, economics professor at Stony Brook University.

Being told they're in a bear market can cause "people to be more cautious," which "increases uncertainty -- there can be some self-perpetuating kind of downward spiral," Zweig said. Consumers may experience a reluctance to spend, he said. "It's bad news" for small businesses, he said. "I think it's going to be rough sledding."

It was only in March 2009 that the most recent bear market ended, and some Long Island investors have already grown cautious about stocks.

Melville resident Martin Blumberg, 70, said he chose a more conservative investment strategy after losing 20 percent on his stock investments in 2008, when he had 70 percent of his retirement money in stocks and 30 percent in bonds and cash.

Now his portfolio is almost the opposite, with 35 percent in stocks and the remainder in municipal bonds and more liquid assets like certificates of deposit, which helped limit his losses to just 4 percent so far this year, he said.

And he has switched his stock investments from more-risky, fast-growing companies to old-line corporations that pay strong dividends, like Bristol-Myers Squibb and Pfizer, said Blumberg, who co-owns the Port Washington-based Auto Barn stores.

He said he will look for buying opportunities in the market now that prices are lower.

"I think it's going to come back," he said of the stock market. "I have seen it go up, and I have seen it go down, and it will go up again."

With Carrie Mason-Draffen and Patricia Kitchen