NEW YORK (CNNMoney.com) -- U.S. stocks opened mixed Thursday as investors worried about rising unemployment and a near $9 billion loss from Ford. Strong earnings from Amazon helped to boost the tech sector.

The Dow Jones industrial average (INDU) lost 0.1%, and the broader Standard & Poor's 500 index (SPX) index was unchanged from Wednesday's open. But the Nasdaq composite index (COMP) gained 0.1%.

Stocks finished higher Wednesday as investors cheered falling oil prices despite a cautious report on the economy from the Federal Reserve.

In the news Thursday:

Ford: U.S. automaker Ford (F, Fortune 500) reported a huge $8.7 billion net loss for the second quarter. The third largest automaker said it would restructure its North American product line to include more of the fuel-efficient vehicles like those made in Europe. (Full story)

Economy: The U.S. Labor Department reported that new unemployment claims rose much more than expected last week. New applications filed for jobless benefits rose by a seasonally adjusted 34,000 to 406,000 - a level not seen since hurricanes devastated the Gulf Coast in September 2005. (Full story)

Investors will see if the battered housing market has begun to recover Thursday, as a key reading on home sales is due to be reported shortly after the market open. The National Association of Realtors is expected to report a decline in the the rate of home sales by owners.

Amazon: Internet retailer Amazon.com (AMZN, Fortune 500), posted better-than-expected second-quarter earnings after the market's close Wednesday. Amazon also boosted its 2008 revenue projections, as CEO Jeff Bezos said high gasoline prices may be luring shoppers to its Web site. (Full story)

Energy: Oil prices rose $1 to $125.44 Thursday morning after falling nearly $4 Wednesday on continued concerns about reduced demand. Oil has plummeted about $22 from its high of $147.27 set on July 11. (Full story)

The average price of a gallon gasoline fell 1.6 cents to $4.026 a gallon in the United States, declining for the 7th straight day, according to a daily survey from motorist advocacy group AAA. (Full story) 

"When you look at cheaper oil and better-than-expected earnings, there is the momentum at play," said Art Hogan, chief market strategist at Jefferies & Company. "Even when the market tries to sell off, it is rallying back to unchanged."

After churning on both sides of the unchanged mark throughout the day, the 30-stock Dow Jones industrial average (INDU) ended up nearly 0.3%. The tech-heavy Nasdaq composite (COMP) gained almost 1%, and the broader Standard & Poor's 500 (SPX) index was 0.4% higher.

Falling oil prices supported the markets, according to Peter Cardillo, chief market economist at Avalon Partners. Also contributing were expectations that the House could pass a bill that would support the struggling housing industry.

"It is adding some optimism that maybe the housing market can begin to stabilize and that would be quite helpful in terms of economic activity," said Cardillo.

Another analyst, however, looked at the stock market gains on Wednesday with more caution.

The markets have been struggling since early July, when all three major indexes fell into bear market territory. A bear market is defined as a drop of at least 20% off the most recent cyclical highs, which the indexes had hit in October.

"You have to be careful with a bear market rally," said Joe Clark, market analyst with the Financial Enhancement Group. "When you have been hit with bad news after bad news after bad news, less of a loss can be interpreted as a positive for a while," he said, but that is only temporary.

Clark said a bear market rally does not last the way a rally can in times of economic health.

"That does not mean that bear market rallies die quickly, but I would be more cautious than optimistic going into the [November presidential] election," he said.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by 2 to 1 on a market volume of 1.72 billion shares. On the Nasdaq, advancers beat decliners by 4 to 3 on a volume of 2.73 billion shares.

Oil: Oil prices continued to decline Wednesday, after a government report showed stronger-than-expected inventories and a Federal Reserve report showed a weakening economy. Light, sweet crude for September delivery fell $3.98 to settle at $124.44 a barrel on the New York Mercantile Exchange, the lowest close since June 4. (Full story).

Gasoline prices fell for the 6th straight day Wednesday, according to a nationwide survey by motorist advocacy group AAA. The average for regular unleaded gas fell more than a penny to $4.042 a gallon, down from $4.055 the previous day. (Full story).

Housing bill: The House was ready to pass new legislation that will offer up to $300 billion in assistance to troubled homeowners and throw government support behind mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). It is expected that the House will approve the nearly 700-page measure and then it would then go back to the Senate for a final vote. (Full story).

President Bush dropped his threat Wednesday to veto the housing bill. (Full story).

Fed report: The Fed's 'beige book' on the economy highlighted the dual problems of weaker growth and higher prices, especially for energy. (Full story).

Company announcements: After the closing bell on Wednesday, the Seattle-based Web retailer Amazon.com (AMZN, Fortune 500) said profit increased 102% to $158 million in the second quarter, or 37 cents per share, compared with net income of $78 million, or 19 cents per share, in second quarter 2007. Analysts polled by Thomson Reuters were expecting earnings of 26 cents per share. (Full story).

Washington Mutual (WM, Fortune 500) reported a $3.3 billion quarterly loss late Tuesday, far worse than Wall Street was anticipating, as it set aside more money for bad loans. Yet, the company offered signs of encouragement as delinquencies in its troubled subprime and home equity portfolios showed "early signs of stabilization." Shares of Washington Mutual stock finished the day down 20%. (Full story).

Northwest Airlines (NWA, Fortune 500) reported a net loss for the second quarter, blaming the rising price of jet fuel for sending it into the red. Despite the loss, Northwest managed to beat analyst projections. The company's stock was up more than 15%. (Full story).

Internet search engine Yahoo (YHOO, Fortune 500) reported second-quarter results Tuesday that fell short of Wall Street's expectations as the company struggled with dwindling market share and softening economic conditions. Shares of the company's stock lost almost 5%. (Full story).

AT&T (T, Fortune 500) reported second-quarter earnings Wednesday that contained signs that the weak economy is catching up to its previously steady results, but investors were pleased. Shares of the company's stock were up 4%. (Full story).

Costco (COST, Fortune 500) warned Wednesday that its fiscal fourth-quarter earnings will fall well below the $1-a-share Thomson Financial analyst consensus estimate, as the warehouse club operator tries to hold prices down even as energy-related costs surge. The company's shares finished the session down nearly 12%. (Full story).

Other markets: In currency trading, the dollar hit a two-week high against the euro, and gained against the Japanese yen, as well. (Full story).

In the bond market, Treasury prices fell, sending yields higher. The yield of the benchmark 10-year note rose to 4.11%, up from 4.10% late Tuesday. (Full story).

COMEX gold for August delivery fell $25.70 to $922.80. 

"A pullback in energy prices is going to be a beneficial move for consumer spending, corporate spending, and the macro economy," said Art Hogan, chief market strategist at Jefferies & Co.

At the end of the trading day, the 30-stock Dow Jones industrial average (INDU) was up 1.2%. The broader Standard & Poor's 500 (SPX) index gained nearly 1.4%. The tech-heavy Nasdaq composite (COMP), which sagged most of the day, ended the day almost 1.1% higher.

Stocks fell right at the open of the trading day in reaction to a slew of disappointing quarterly financial reports from Wachovia, USAirways, United Airlines' parent company UAL Corp. and shipping carrier UPS.

But by midmorning, crude oil prices plunged more than $5, leading all three major indexes higher as investors shifted attention away from corporate results.

"Oil prices are taking center stage, pulling investors' attention away from earnings," said David Levy, portfolio manager at Kenjol Capital Management.

Adding further support were comments by Treasury Secretary Henry Paulson urging Congress to back a plan to support troubled mortgage finance giants Fannie Mae and Freddie Mac.

In addition, the Federal Reserve Bank of Philadelphia President Charles Plosser, said the Fed may need to raise rates sooner rather than later to fend off inflation - a move seen as a boon to the dollar and stocks.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by more than 2 to 1 on a market volume of 1.56 billion. On the Nasdaq, advancers also beat decliners by 2 to 1 on a market volume of 2.52 billion shares.

Oil prices: Oil prices fell Tuesday, closing at the lowest point since June 5, as a perceived decline in U.S. demand again took hold and worries subsided that a storm would disrupt production in the Gulf of Mexico. Light, sweet crude for August delivery, which plunged more than $5 in afternoon trading, settled down $3.09 to $127.95 a barrel. Starting Wednesday, the September contract will be actively traded. (Full story).

"The primary driver [for the stock market] is the big drop in oil prices," said Levy. However, a number of quarterly reports, "many of which were disappointing," said Levy, were keeping a damper on stock prices for most of the trading day.

"If you want to get a read on sentiment that has changed, it is the ability of energy prices to go down as much as they can go up," said Hogan. "To have a break in that trend is very significant," he added.

Corporate results: Washington Mutual (WM, Fortune 500) reported a $3.3 billion quarterly loss Tuesday - far worse than Wall Street was anticipating - as it set aside more money for bad loans. The Seattle-based thrift reported a net loss of $6.58 a share, which included a charge related to a $7 billion capital raise the company announced in April. Shares of Washington Mutual, however, gained 9% in after-hours trading on the news, after finishing the session more than 6% higher. (Full story).

Wachovia (WB, Fortune 500) posted a loss of nearly $9 billion for its second quarter Tuesday on losses related to home mortgages and the bank's declining market value. The shortfall exceeded the estimates of Wall Street analysts, but analysts said the bank's weakened condition may make it an attractive takeover candidate. As a result, shares of Wachovia ended the day up more than 27%. (Full story)

US Airways (LCC, Fortune 500) barely missed second-quarter revenue projections, but reported a smaller loss than expected. The No. 6 U.S. carrier reported a net loss of $101 million, or $1.11 per share. Shares of US Airways surged nearly 59% by the end of the day. (Full story).

United Airlines parent UAL (UAUA, Fortune 500) reported Tuesday a net loss of $2.7 billion for the second quarter, due largely to severance costs incurred by layoffs at the money-losing carrier. Shares of United ended the day nearly 69% higher after the company announced thousands of new job cuts.(Full story).

UPS (UPS, Fortune 500), the world's largest shipping carrier, said Tuesday its profit fell nearly 21% in the second quarter despite a 6.7% increase in sales. The company also lowered its outlook for the year amid a slumping U.S. economy. Shares of UPS gained more than 4%. (Full story)

American Express (AXP, Fortune 500) fell nearly 7% after posting a smaller-than-expected second-quarter profit and withdrawing its 2008 earnings guidance. (Full story).

Given the slew of grim earnings reports, "it is encouraging to see the market trade higher than was indicated pre-market based on those earnings," said Levy.

Comments by Paulson and Plosser: Investors also digested Treasury Secretary Henry Paulson's comments urging Congress to pass a bill supporting mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

Speaking in New York Tuesday, Paulson said it's crucial that the companies have access to the capital they need to continue their operations and regain the public's confidence. (Full story).

Also, Philly Fed president Charles Plosser said inflation concerns may warrant a hike in the key federal funds rate, despite the economic slowdown.

Plosser said the Fed probably will need to boost interest rates "sooner rather than later" - even if employment and financial conditions haven't revived. Plosser is a voting member of the Federal Open Market Committee, the group including Fed Chairman Ben Bernanke that determines monetary policy, including interest rates. (Full story).

The hawkish comments from Plosser lent support to the market, according to one analyst.

"The stock market wants to hear that the Fed would take action to combat inflation and bolster the dollar," said Peter Cardillo, chief market economist at Avalon Partners. 'In that sense the rhetoric is positive, not negative."

Tech sector: The Nasdaq pulled into positive territory at the very end of the trading day on Tuesday, but the index was down most of the day. "The corporate news regarding the tech sector has not been good," said Cardillo.

"You have various household names that disappointed in the tech sector," said Hogan, including Apple and Texas Instruments, which dragged at the index throughout the day.

Computer and consumer electronics maker Apple (AAPL, Fortune 500) reported fiscal third-quarter earnings Monday that beat forecasts on strong sales of Mac computers and iPhones. But the company's outlook for the fourth quarter disappointed investors. Shares of Apple were down by almost 3%. (Full story).

Dallas-based semiconductor maker Texas Instruments (TXN, Fortune 500) reported higher second-quarter earnings, but the bottom line missed analysts' expectations. The company's shares were down almost 15% at the end of the day.

Web portal Yahoo (YHOO, Fortune 500) reported earnings and revenue that fell short of expectations. The Sunnyvale, Calif.-based company said quarterly net income fell 22% to $131 million, or 9 cents per share from $161 million, or 11 cents per share a year ago. Shares of the company fell more than 1% in regular trading. (Full story).

Other markets: In currency trading, the dollar was up against both the 15-nation euro and the Japanese yen.

In the bond market, Treasury prices sank, sending the yield for the 10-year benchmark note up to 4.10% from 4.03% late Monday. Bond prices and yields move in opposite directions.

COMEX gold for August delivery fell $15.20 to $948.50.  

The 30-stock Dow Jones industrial average (INDU) closed down less than 0.3% while the broader Standard & Poor's 500 (SPX) index finished the day down less than 0.1%. The tech-heavy Nasdaq composite (COMP) shed just more than 0.1%.

However, market breadth remained positive. On the New York Stock Exchange, advancers beat decliners by 2 to 1 on a volume of 1.20 billion. On the Nasdaq, advancers barely beat out decliners by 4 to 3 on volume of 1.82 billion shares.

The markets have been struggling since early July, when all three major indexes fell into bear territory. A bear market is defined as a drop of at least 20% off the most recent cyclical highs, which the indexes had hit in October.

While the bottom is never pretty, a bear market may mean that the market is preparing to rebound.

A day with little movement away from break-even may be a sign of a recovering market, said Harry Clark, founder and chief executive of Clark Capital Management Group.

"A big spike up won't hold, a big spike down won't hold, so this small plus and minus is a good thing," he said.

Small movements up and down around the historic closing price "is the process of building a bottom," said Clark. "The pull and tug between the bulls and bears" signals the market is working to recover from a steady decline, he said.

Energy prices: Oil prices rebounded strongly Monday, following the largest four-day slide in trading history. Investors focused on a breakdown of negotiations with Iran, as well as Tropical Storm Dolly, which is making its way into the Gulf of Mexico. Light, sweet crude oil for August delivery settled up $2.16 to $131.04 a barrel. (Full story).

The stock market is getting some support from oil hovering around the $130-a-barrel mark.

"Oil has found a level that makes more sense," said Hogan. "People have started to settle into the thought process that there could be some demand destruction if commodity prices stay at these levels and as the economy remains slow," he said.

Regular unleaded gas fell to $4.069 a gallon, down from $4.077 the previous day, according to a daily survey from motorist advocacy group AAA. In the past year, gas prices have risen more than 36%, causing Americans to cut back on travel and spend less in other areas. (Full story).

Tech sector: Web portal Yahoo announced a settlement with activist investor Carl Icahn over its lineup of candidates for board of directors. Yahoo (YHOO, Fortune 500) said the board is being expanded to 11 members, one of whom will be Icahn, along with two other added positions from Icahn's proposed slate of nine candidates. (Full story).

Shares of Yahoo slipped by more than 3% by the end of the trading day. "There is going to be news on Yahoo every day until they merge with Microsoft," said Hogan.

Yahoo was scheduled to report its earnings Tuesday.

After the bell on Monday, Apple (AAPL, Fortune 500) reported its third-quarter profit jumped 31%, beating Wall Street's expectations. The technology giant earned $1.07 billion, or $1.19 per share, 11 cents ahead of Wall Street's expectations, according to a Thomson Reuters survey of analysts. (Full story).

Shares of Apple ended the trading day up 0.6%, but guidance for the coming quarter hit the stock in after-hours trading, pushing the stock down about 4.5%.

Drugmakers: Shares of Merck (MRK, Fortune 500) and Schering-Plough Corp. (SGP, Fortune 500) fell after a study showed that their joint cholesterol-lowering drug Vytorin didn't lower the risk of heart valve problems or the need for surgery in a clinical trial.

The companies were scheduled to report results before the open, but delayed their releases until after the closing bell to give investors a chance to digest the report, released around midday.

Merck closed the regular hours trading day down 6% and Schering-Plough lost more than 11%. After the bell on Monday, both companies announced financial reports.

On Monday after the bell, drug developer Merck announced that its second-quarter profit beat analyst expectations. Excluding charges, the company reported earnings per share of 86 cents, which beat analyst's expectations of 83 cents per share. The company's stock fell more than 7% in after hours trading, on concerns over the Vytorin report. (Full story).

Several charges drove second-quarter profit for drug developer Schering-Plough down, but adjusted profit results for the quarter came in at 45 cents per share, which topped Wall Street expectations of 42 cents per share. The company's stock fell about 5% in after hours trading.

Bank of America: Bank of America (BAC, Fortune 500) reported better-than-expected earnings, even as it revealed that its profit plunged 41% in the most recent quarter. The Charlotte, N.C.-based company earned $3.41 billion, or 72 cents a share, during the second quarter. (Full story). Shares of Bank of America closed up nearly 4%.

Other banks have reported better-than-expected financial results recently. "Last week we saw a lot of news out of the financials that was not as bad as we expected," said Art Hogan, chief market strategist with Jefferies & Co.

Citigroup (C, Fortune 500) reported a $2.5 billion quarterly loss Friday, which was actually better than Wall Street's grimmer projections. On Thursday, Merrill Lynch (MER, Fortune 500) reported its fourth straight quarterly loss. JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) also reported lower profits, but both banks were ahead of Wall Street's expectations.

American Express: After the bell on Monday, American Express reported profits that missed expectations badly, citing an economic environment that "has weakened significantly." The company said it earned profits of $653 million, or 56 cents a share, for the quarter, down from the year-ago $1.06 billion, or 88 cents a share. Analysts surveyed by Thomson Financial were looking for an 82-cent profit. (Full story).

Quarterly reports on the horizon: The rest of the week brings a slew of quarterly financial reports.

"In the next few days there are lots of earnings and that will be a big impetus," said Clark. "People want to wait to see how earnings come out."

Wachovia (WB, Fortune 500) and Washington Mutual (WM, Fortune 500) are scheduled to report on Tuesday.

Other companies on tap include telecommunications giant AT&T (T, Fortune 500) and aircraft-maker Boeing (BA, Fortune 500) and results from the battered airline industry, including US Airways (LCC, Fortune 500), Jet Blue (JBLU) and UAL Corporation (UAUA, Fortune 500), the owner of United.

Leading indicators: The Conference Board announced Monday that its index decreased for the second consecutive month in June by 0.1%, in line with a consensus of economists surveyed by Briefing.com. (Full story).

Other markets: In currency trading, the dollar lost ground against both the euro and the yen.

In the bond market, Treasury prices mostly increased, and the yield of the 10-year benchmark fell to 4.06%, from 4.08% late on Friday. Bond prices and yields move in opposite directions.

COMEX gold for August delivery settled $5.70 higher at $963.70 an ounce. 

Techs, however, couldn't shake losses after a number of disappointing quarterly results. That sent the tech-heavy Nasdaq composite (COMP) down 1.3% Friday.

The Dow Jones industrial average (INDU) rose 50 points to close the day 0.4% higher. Stocks rallied for the third straight day, after gaining more than 200 points in the previous two sessions.

The broader Standard & Poor's 500 (SPX) index finished just a fraction of a point above Thursday's close.

"Investors were waiting to see if the rebound we saw over the past two days is sustainable over the long term as we go into earnings season," said Russell Lundeberg Jr., chief investment officer at Barrett Capital Management. "People are paying attention to how much impact high commodity prices have had on companies, as well as liquidity issues."

Stocks oscillated in the first few minutes of trade, but turned decidedly lower minutes later as a slew of disappointing quarterly financial reports - especially from the tech sector - were absorbed.

Rising oil prices thwarted several attempts at a comeback by the non-tech stock gauges throughout the day. But oil prices dipped into negative territory in the afternoon, sending the Dow and S&P 500 into a late-session rally.

"Oil has a lot of effect on stocks in the short term," said Lundeberg. "It's a headline number that investors are easily excited about."

Oil fell 41 cents a barrel to settle at $128.88, after seesawing above and below the $130-per-barrel level for much of the day Friday. A four-day tumble in crude has brought the contract's decline to more than $16. (Full story).

Oil's volatility made investors jittery until late in the session, after traders' sentiment was overwhelmingly positive in the past two sessions.

"Except for some disappointments from the tech sector, in general, earnings have been coming out better than expected," said Bill Stone, chief investment strategist for PNC Wealth Management. "We were so down in the dumps that any bit of good news was going to set us up for a run."

Investors will see if the market can sustain the run into next week. The Conference Board will release its Leading Indicators economic report shortly after the market open on Monday.

Traders also will see quarterly earnings results from Bank of America (BAC, Fortune 500), as well as pharmaceutical companies Merck (MRK, Fortune 500) and Schering-Plough (SGP, Fortune 500), before the market open Monday.

Tech sector tumbles. Internet search leader Google (GOOG, Fortune 500), software giant Microsoft (MSFT, Fortune 500) and chipmaker AMD (AMD, Fortune 500) all missed analysts' earnings-per-share estimates after the market closed Thursday, sending tech shares lower.

IBM (IBM, Fortune 500) posted earnings that beat analysts' expectations, but that positive news could not put the brakes on a sharp tech sector decline.

AMD led the tech selloff, dropping 12.3% in Friday trading. Google fell 9.8%, and Microsoft lost 6%. Shares of IBM gained 2.7%.

"There was little direction given by tech companies for investors to manage their expectations on," said Lundeberg. "Techs in general had been a little bit of a safe haven this year, but people are now taking a little bit of a more cautious view."

Market breadth was mixed. On the New York Stock Exchange, advancers just barely topped decliners on a volume of 1.7 billion shares. On the Nasdaq, losers beat winners by a margin of 5 to 4 on volume of 2.3 billion shares.

Mixed financial sector reports. Financials have been hammered by the subprime mortgage collapse and credit crisis, but sector stocks had rebounded strongly in the past two sessions. However, a mixed bag of news took some of the wind out of the sails Friday.

Investment bank Merrill Lynch (MER, Fortune 500) reported a loss of $4.95 per share after Thursday's close. The loss was far worse than analysts' expectations, but shares managed to gain 0.6% Friday. (Full story).

Dow component Citigroup (C, Fortune 500), however, roundly beat Wall Street's expectations with its quarterly financial report. The bank posted a loss of $2.5 billion on writedowns and soaring credit costs, but Wall Street had been expecting a wider loss. Shares rallied 7.7% Friday. (Full story).

Government-backed mortgage financier Freddie Mac (FRE, Fortune 500) filed a registration statement with the Securities and Exchange Commission for a possible stock offering, although there's no guarantee that the beleaguered company will go ahead with that. Freddie is considering a plan to raise new capital by selling up to $10 billion in new shares, according to The Wall Street Journal.

Shares of Freddie rose 10.2%, and its counterpart Fannie Mae (FNM, Fortune 500) soared 22.6%. (Full story).

"Overall, good news is coming out of the financial sector, which no one expected," said Stone. "Time will tell if it will continue, but so far, so good."

Other earnings news. Oil-field services provider Schlumberger (SLB) said Friday its second-quarter profit increased nearly 13%, beating analysts' expectations. Shares were 3.9% higher Friday. (Full story).

Toymaker Mattel (MAT, Fortune 500) said Friday that its second-quarter earnings fell by nearly 50% on slumping demand and higher costs amid a difficult economic climate. Results still beat Wall Street estimates, though, sending shares soaring 13%. (Full story).

Dollar rises. In currency trading, the dollar rose slightly against the euro and yen, as inflation worries in the European Union - especially Germany - mounted.

Gas prices. The average price of regular unleaded gasoline fell 0.9 cent to $4.105 a gallon Friday. Gas fell from its all-time high set the day before, according to a daily survey from motorist advocacy group AAA. (Full story).

Other markets. COMEX gold for August delivery fell $12.70 to settle at $958 an ounce. Gold has crept back near record levels recently, after falling into the $800 range in the past few months.

Treasury prices fell Friday, bringing the yield on the benchmark 10-year note up to 4.09%, from 4.04% at Thursday's close. Bond prices and yields move in opposite directions. 

The Dow Jones industrial average (INDU) gained 207 points to rise 1.9% on the day. The big boost followed Wednesday's gain of 277 points - the largest one-day increase in the Dow since April 1.

The broader Standard & Poor's 500 (SPX) index added 1.2%. The tech-heavyNasdaq composite (COMP) also gained 1.2% despite a downgrade of Internet auctioneer eBay.

Stocks roared immediately after the market open, with indexes jumping on strong earnings from JPMorgan Chase. But the major gauges quickly pared those gains as crude oil shot up.

Stocks briefly dipped into negative territory before rebounding strongly as oil prices fell more to their lowest levels in more than a month.

Oil prices fell $5.31 to settle at $129.29 a barrel, bringing the contract's 3-day decline to nearly $16. One reason for Thursday's slide was a 7.6% plunge in natural gas prices. (Full story)

"With lower oil prices, there's some hope that consumers will be a little better off," said Robert Philips, president of Walnut Asset Management. "Investors also hope that the cost of materials is reduced for corporations, especially with the airlines."

The two straight days of big market gains led some observers to believe that stocks will sustain a rally despite continued weak economic indicators. (Full story)

"The market generally comes out of the doldrums before the economy does," said Philips."There's lots of value out there - investors just need to look at stocks' fundamentals as opposed to what pundits tell them."

But as no major economic reports are due Friday, investor sentiment may be tested by some discouraging earnings reports released after the market's close.

Internet search leader Google (GOOG, Fortune 500), software giant Microsoft (MSFT, Fortune 500) and chipmaker AMD (AMD, Fortune 500) all missed analysts' earnings-per-share estimates. Shares tumbled 8%, 6% and 9% respectively in after-hours trading.

Investment bank Merrill Lynch (MER, Fortune 500)'s loss of $4.95 per share was far worse than analysts' expectations. Merrill rose 9.8% on the day but fell more than 8% after hours. (Full story)

IBM (IBM, Fortune 500) posted earnings that beat analysts' expectations, but shares still fell less than 1% in after-hours trading.

Citigroup (C, Fortune 500), which posted a 9.1% gain Thursday, will report earnings Friday morning.

Another big day for financials: Financials, which have been hammered by the subprime mortgage collapse and credit crisis, showed some follow through from Wednesday's rebound, sending the Dow Jones U.S. banks index up 10.62% Thursday.

JPMorgan Chase (JPM, Fortune 500) said its second-quarter profit plunged 53% due to $1.1 billion in writedowns. But the bank, which incurred a large loss from acquiring embattled investment bank Bear Stearns, still managed to beat Wall Street projections. Shares jumped 13.5% (Full story)

Also reporting better-than-expected earnings Thursday was investment manager BlackRock (BLK, Fortune 500). Its profit rose 23% in the second quarter on a significant increase in assets. Shares rose 16.4% Thursday.

Other financials continued strong gains from the previous session. Washington Mutual (WM, Fortune 500) rose 10.2% and Bank of America (BAC, Fortune 500) soared 16.9%.

Shares of Wachovia (WB, Fortune 500) rose 27.5% despite action by regulators in several states to seek documents from the Wachovia Securities unit tied to the company's auction-rate securities sales. (Full story)

Government-backed mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) also rose for the second consecutive session. Fitch Ratings affirmed the 'AAA' long-term issuer default ratings for both firms Thursday, though the credit rating company chopped Fannie's preferred stock rating and put Freddie on watch for possible downgrade. Shares of Fannie rose 18.2% and Freddie gained 22%. (Full story)

"JPMorgan's earnings and assurances that Freddie and Fannie won't go down were pretty influential in adding some confidence to the markets Thursday," said Philips.

The embattled firms were the focal points of downtrodden investor sentiment toward financials for several of the previous sessions before rebounding strongly Wednesday.

Mortgage insurers Fannie and Freddie's lead Thursday, with MGIC Investment (MTG) leading the pack with a 39% gain. Radian Group (RDN) added 31.6% and PMI Group (PMI) also rose strongly with a 25.5% gain.

Investment banks also fared well, with Morgan Stanley (MS, Fortune 500) rising 9.3%, and Lehman Brothers (LEH, Fortune 500) posting an impressive 13.5% gain.

Goldman Sachs (GS, Fortune 500) rose 4.9%, even after a Wall Street Journal report Wednesday that said the former Bear Stearns chief executive is questioning whether Goldman traders in London were manipulating the collapsing firm's stock. (Full Story)

Some analysts believe that the new "naked" short-selling bans have helped financial stocks recover.

The Securities and Exchange Commission issued an emergency order Tuesday to curb naked short-selling - which is when an investor shorts a stock before actually borrowing it - in shares of more than a dozen beleaguered financial firms. (Full story)

"Naked shorts have been extremely negative, putting many businesses out of business," said Peter Cardillo, chief market economist with Avalon Partners. "Obviously we need shorts in the markets, but the SEC is finally awakening to naked shorts because of what it has done to the economy."

Economy: Construction of single-family homes fell 5.3% to the slowest pace since January 1991, according to a Commerce Department report. (Full story)

The Philadelphia Fed Index, a regional manufacturing survey, posted a reading of minus 16.3 in July, worse than economists' expectations.

And the Labor Department reported that initial jobless claims rose by 18,000 last week, although the jump was smaller than economists had forecast. The four-week moving averages of initial jobless claims and continued claims from those already receiving benefits both fell slightly.

"We had some good earnings this morning, but the fact that we had a mixed bag of economic numbers is keeping the market from moving higher," said Cardillo.

Earnings beat expectations: Shares of online auction Web site eBay (EBAY, Fortune 500) fell sharply after it issued a disappointing earnings forecast for the current period. After the market close Wednesday, eBay said its second-quarter net rose 22%, but its outlook for the third quarter failed to impress investors. Goldman Sachs and Merrill Lynch both downgraded the stock, sending the stock plummeting 13.9%

Continental Airlines (CAL, Fortune 500) said it swung to a loss due to higher fuel charges, but the airline still managed to beat analysts' expectations. Shares rose 8.4%

Dow component Coca-Cola (KO, Fortune 500) said its second-quarter profit dropped 23% on a one-time charge related to its bottling company. Excluding the charge, the world's largest soft drink maker beat analysts' expectations. Shares fell 3.8%.

Diversified manufacturer United Technologies (UTX, Fortune 500), another Dow component, reported a 11% jump in earnings, sending its shares higher by 5.9%

Market breadth was very positive. On the New York Stock Exchange, advancers topped decliners by a five to two margin on volume of 2 billion shares. On the Nasdaq, winners beat losers by two to one on volume of 2.6 billion shares.

Gas prices: The average price of regular unleaded gasoline remained at the all-time high of $4.114 a gallon set Wednesday, according to a daily survey from motorist advocacy group AAA. (Full story)

Dollar falls: In currency trading, the dollar sank against the euro as inflation worries in both the U.S. and in the European Union mounted. The dollar gained against the Japanese yen, however. (Full story)

Other markets: COMEX gold for August delivery rose $8 to settle at $970.70 an ounce. Gold has crept back near record levels recently after falling into the $800 range in the past few months.

Treasury prices fell Thursday, bringing the yield on the benchmark 10-year note up to 4.04% from 3.95% late Wednesday. Bond prices and yields move in opposite directions.