(Updates to late afternoon)
By Haitham Haddadin
NEW YORK, March 20 (Reuters) - Stocks rose in volatile late Thursday afternoon trade on investor hopes that a stepped-up U.S.-led assault on Iraq was going smoothly.
"We're really hostage to the headlines," said Andrew Baker, senior Nasdaq trader at regional investment bank Wedbush Morgan in Los Angeles, adding that the market was supported by signs a full-scale attack has started.
But he also sounded a cautious note. "You can anticipate we'll have more volatility. It's a very dangerous market," he said.
The blue-chip Dow Jones industrial average was up 33.68 points, or 0.41 percent, at 8,299.13, after skidding almost 135 points earlier. The broad Standard and Poor's 500 index gained 2.94 points, or 0.34 percent, to 876.96. The tech-laced Nasdaq Composite Index rose 9.15 points, or 0.65 percent, to 1,406.22.
U.S. cruise missiles slammed into the center of Baghdad, shaking the city with massive explosions, after night fell in the Iraqi capital, Reuters eyewitnesses said. CNN said the first marine expeditionary force has crossed into Iraq.
In early morning trading, stocks had dropped more than 1 percent after U.S. President George W. Bush warned that the war may be "more difficult than some predict."
The market cut losses later in the morning on rumors that Iraqi President Saddam Hussein may have been killed or wounded, according to traders. A U.S. missile hit one of the family homes of Saddam in Baghdad on Thursday but there were no casualties, Iraqi radio said. It said the missile had hit the home early on Thursday, during the first wave of U.S. attacks.
DEFENSE STOCKS DOWN
Defense stocks fell as investors bet that much of the increased spending on weapons was over, cashing in after a six-session run-up. The Standard & Poor's defense and aerospace index shed 1.07 percent on losses by the likes of defense contractors Northrop Grumman , down $2.45 to $85, Lockheed Martin , down $1.25 at $47.05, and General Dynamics , off $1.45 at $56.86.
Goodrich Corp. , a maker of airplane landing gear, led sector decliners on a percentage basis and fell 52 cents, or 3.4 percent, to $14.92.
General Motors Corp. , a Dow member, added 29 cents to $34.35, after an earlier decline. Investment bank Bear Stearns cut its full-year 2003 earnings forecast for GM because of weak March sales and the likelihood of further production cuts by the world's largest automaker. Rival Ford Motor Co. shed 5 cents to $7.58.
Among Dow issues, Microsoft Corp. pared losses and was down just 2 cents to $26.30 on Nasdaq. The top software maker warned Windows users of a critical flaw that could allow someone to take control of a computer by luring victims to open an e-mail or Web page with malicious code on it.
El Paso Corp. rallied $1.07, or 19.5 percent, to $6.57. The Federal Energy Regulatory Commission said it plans to issue a decision on March 26 on whether El Paso withheld natural gas supplies from California during the state's energy crisis in 2000-2001.
Health information provider NDCHealth Corp. plunged $7.58, or nearly 34 percent, to $14.86. The company reported a quarterly loss on a host of charges, including a write-down in the value of an investment and restructuring costs.
ECONOMIC DATA
Questions linger about the health of the U.S. economy after the war ends.
War fears, souring consumer sentiment and volatile energy prices sent a key U.S. economic forecasting gauge down for the first time in five months in February, while the job market is currently showing few signs of revival, economic reports showed on Thursday.
Hours after the opening salvos in the U.S.-led war on Iraq, the New York-based Conference Board said tension ahead of the conflict helped push its index of leading indicators down 0.4 percent last month, the first dip in five months.
A Labor Department report showed the number of Americans filing for first-time jobless benefits fell for the second straight week last week. But the four-week moving average crept up to 424,750 from 421,000 in the previous week.
A third report showed that manufacturing in the U.S. mid-Atlantic region shrank in March for the first time in five months as the buildup to war prompted factories to slash production -- the latest sign that looming military conflict had sapped the economy. (With additional reporting by Herb Lash, Brendan Intindola, Denise Duclaux, Elizabeth Lazarowitz, Vivian Chu, Jean Scheidnes and Doris Frankel)