By Renae Merle
Washington Post Staff Writer
Thursday, December 4, 2008

Stocks staged a late-day rally yesterday, shrugging off more signs that the country's recession is deepening.

After spending most of the day fluctuating between slight gains and losses, the Dow Jones industrial average surged in the last hour of trading, closing up 2.05 percent, or 172.60 points, at 8591.69. The Standard & Poor's 500-stock index was up 2.58 percent, or 21.93 points, to close at 870.74, while the tech-heavy Nasdaq composite index gained 2.94 percent, or 42.58 points, to close 1492.38.

Investors have already factored in much of the bad economic news and were awaiting a signal from tomorrow's Labor Department report on the unemployment rate to gauge how severe the recession could become, analysts said. A report showing that online shopping increased after the Thanksgiving holiday, though retailers had to use discounts to lure consumers, was also seen as a positive, said Douglas S. Roberts, chief investment strategist for New Jersey-based Channel Capital Research.

But in a reflection of investor fears, private equity firm Fortress Investment Group said clients want to withdraw $3.51 billion from several of its funds by year-end, according to a Securities and Exchange Commission filing. That has prompted the firm to temporarily halt pending redemptions, or withdrawal requests, from its Drawbridge Global Macro Master Fund, a hedge fund. The company's stock plummeted 25.2 percent to $1.87 a share.

Redemptions from hedge funds have been blamed, in part, for Wall Street's volatility in recent months as investors have pulled their money out of the market.

Concerns about the economic slowdown, now classified as a recession, were reinforced yesterday with more poor economic data.

The Federal Reserve said business conditions weakened in recent weeks throughout the United States and in almost every industry. The Institute for Supply Management, a trade group, said service sector activity fell significantly last month with its non-manufacturing index dropping to 37.3 in November, down from 44.4 in October.

Adding to the day's dismal news was an ADP National Employment Report showing that private employers shed 250,000 jobs in November on a seasonally adjusted basis. That was worse than analysts expected. The ADP report sets the stage for the Labor Department's monthly jobs report. Analysts expect that report to show the unemployment rate spiked to 6.7 percent in November and job losses approached or exceeded 300,000.