Stocks recover from afternoon stall, Dow up 369, benchmarks out of correction

Stocks surged again Thursday as Wall Street builds on the Dow's historic rally Wednesday as order is restored to the U.S. stock market following its first dip into correction territory in four years.

The Dow Jones industrial average jumped about 375 points, or 2.1% in afternoon trading and the Standard & Poor's 500-stock index gained 2.5%. The Nasdaq composite index jumped 2.6%.

Oil prices surged 9% and jumped way back above the $40 level as benchmark U.S. crude was up $3.48 to $42.09 a barrel.

Investor angst is on the decline and stock prices are again on the rise following the Dow's nearly 620-point, 4% gain Wednesday -- a much-needed rebound that restored a sense of stability to a nervous market following a nearly 15% drop for the blue-chip stock gauge from its May 19 high.

Powering the rally were fresh signs that the U.S. economy is still powering on despite slowing growth in China -- including a super-strong revised reading released today on second-quarter GDP, which came in at 3.7%, up from an initial estimate of 2.3% -- and comments from a Federal Reserve member Wednesday that pointed out that the reasons for a September interest-rate hike were "less compelling" following the recent market turbulence caused by China's growth scare.

Also driving the bullish price action today on Wall Street was "news that the Chinese government was directly buying equities in addition to making liquidity injections into the banking system," according to a report from Bespoke Investment Group. The government support helped the Shanghai composite index reverse losses late in the day and finish up more than 5%.

Today's follow-through rally is what Wall Street was hoping for, as investors want to see clear signs that appetite for risk-taking is back and build on Wednesday's historic gains. Wall Street traders also got confirmation that Wednesday's rally had legs when stock markets in China, Japan and then Europe all rallied earlier today.

The positive price action on Wall Street is critical, given the recent turbulence, says Paul Hickey, co-founder of Bespoke Investment Group.

"We continue to believe that the dynamics of the U.S. equity market are the most important risk-driver globally right now," Hickey wrote in a report. "So if we’re able to see a close above the opening tick in the market today, we’ll be quite optimistic that U.S. stock buyers are back up and at it."

Shares in Shanghai staged a late-day rally that pushed the mainland Chinese stock index, which had fallen 25% since August 11, according to Barclays, to a 5.3% gain. Shares were also up in Japan, with the Nikkei 225 up 1.1%. Stocks in Hong Kong also rose sharply, rallying 3.6%.

The rally in Asia then spread to Europe, where battered stock indexes in Germany, France and London all up more than 3%.

Wednesday's rebound came after Wall Street pros had been chirping about a stock market that had been beaten down in a way not seen since the stock market crash in October 2007. The general consensus was that the Dow and the rest of the stock market was due for a big bounce.

"The most stretched, extended and oversold condition we have seen since 1987 is now going to start to work off the most stretched, extended and oversold condition we have seen since 1987," Gary Kaltbaum, president of Kaltbaum Capital Management, told clients late Wednesday.

But in a follow-up research note released this morning Kaltbaum is telling clients it may still be too early to call this rebound the definitive end of the corrective phase.

"We are not as sure as some pundits who are already calling the bottom that after one day up, you can call THE bottom," Kaltbaum wrote. "We will have a much better idea in a couple of days on how good the bounce is, how far it goes and what type of conviction is behind it."

What troubles Kaltbaum is the latest move by China to goose its pluning markets. Reports suggesting the Chinese government stepped in and was buying shares of large Chinese companies to bolster prices worries him, as it is the latest manipulation of Chinese markets.