Financial picture continues to darken

The nation's financial picture grew darker yesterday, marked by breathtaking numbers: a quarter-trillion-dollar budget deficit for a single month, a half-million new applications for unemployment benefits and wild swings on Wall Street that briefly pushed the Dow Jones industrial average below 8,000.

Wall Street eventually rallied to post its third-best point gain ever, but the volatility of a weak economy remains a concern among investors.


Analysts predicted that a steady drumbeat of gloomy statistics would only get worse in coming months as the country endures what could be the worst downturn since the severe 1981-1982 recession.

The initial costs of the government's economic bailout efforts sent the U.S. budget deficit for October soaring to a record $237.2 billion, putting it on track to reach the once-unfathomable sum of $1 trillion for the year.


"And as bad as these numbers are, they may look good a year from now because things are going to get much worse," said Sung Won Sohn, an economist at the Smith School of Business at California State University.

Still, financial markets rose for the first time this week after three days of selling that wiped out about $1 trillion in shareholder value. Many investors, though nervous about a prolonged economic downturn, appeared convinced the market had priced in enough bad news. The Dow rose 552.59, or 6.67 percent, to 8,835.25.

It's "a herd mentality," said Ryan Larson, senior equity trader at Voyageur Asset Management. "We started going higher - and you don't want to be the last one on the boat."

But investors grappled with more grim economic news as the number of newly laid-off workers applying for jobless benefits last week hit the highest level since the period right after the Sept. 11, 2001, terrorist attacks. First-time claims increased by 32,000 to 516,000, the Labor Department said.

Payroll losses at companies from Citigroup Inc. and Goldman Sachs Group Inc. to Ford Motor Co. and Circuit City Stores Inc., the consumer electronics chain that filed for bankruptcy this week, mean unemployment claims will probably rise further.

As the economy weakens, the government's fiscal picture was projected to deteriorate, too, with layoffs cutting into tax revenues and forcing higher payouts for programs such as unemployment benefits and food stamps.

Unemployment, which jumped to a 14-year high of 6.5 percent in October, is projected to climb above 8 percent. Sohn said that will further crimp government tax revenues, which were down 7.5 percent in October compared with a year ago.

Wall Street was down sharply early in the day, but the markets later rebounded with a fury. The Dow fell as low as 7,965.42 and rose as high as 8,876.59. That's a trading range of 911 points. The Dow did not sink below its Oct. 10 trading low of 7,882.51.


The Dow's nearly 553-point gain was the third-largest single-session point gain on record, following the 889-point rise on Oct. 28 and the 936-point surge on Oct. 13.

The Standard & Poor's 500 index rose 58.99, or 6.92 percent, to 911.29, after dropping to 818.69.

The Nasdaq composite index rose 97.49, or 6.50 percent, to 1,596.70.

Some analysts said investors were positioning themselves ahead of a weekend meeting of the Group of 20 leaders in Washington. The meeting could bring decisions on mending the troubled global financial system. The so-called G-20 includes the United States, Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.

But uncertainty among retailers and others remains a concern on consumer spending as the holiday season approaches.

Wal-Mart Stores Inc. reported that profits were up 10 percent for the third quarter as its renewed focus on low prices attracted financially squeezed shoppers. But the country's biggest retailer trimmed its outlook because of the troubled global economy.


And retailer Kohl's Corp. said its third-quarter profit fell 17 percent as revenue dropped amid the consumer pullback, and the company lowered its outlook for what it said would be "the most challenging" holiday season in years.

The Treasury Department said that the $237.2 billion deficit for October, the highest ever recorded for a single month, reflected the $115 billion spent last month to purchase stock in eight of the country's biggest banks, the opening phase in the $700 billion rescue of the financial system that was passed by Congress on Oct. 3.

The Associated Press, Bloomberg News and the Los Angeles Times contributed to this article.