(Updates to close)
By Haitham Haddadin
NEW YORK, March 20 (Reuters) - Stocks rose in volatile trade on Thursday, giving the blue-chip Dow and the S&P 500 their first seven-day rallies since August 2000, as investors bet that the U.S.-led war on Iraq will be over swiftly.
The market gyrated between gains and losses throughout the session before ending on higher ground as Wall Streeters absorbed the news flow about the stepped-up assault and mulled how to position portfolios accordingly.
"Everyone is glued to their television screens right now. We saw a little pop in the market this morning on reports that Saddam (Hussein) might have been injured," said Weston Boone, vice president of listed trading at Legg Mason Wood Walker. "Volatility will probably be all over the place, and you will get these knee-jerk reactions."
The blue-chip Dow Jones industrial average ended with a gain of 21.15 points, or 0.26 percent, at 8,286.60, after skidding almost 135 points earlier. The broad Standard and Poor's 500 index eked out a rise of 1.82 points, or 0.21 percent, to 875.84. The tech-laced Nasdaq Composite Index rose 5.70 points, or 0.41 percent, to 1,402.77.
The Dow and S&P last chalked up seven-day rallies in August 2000, according to financial Web site MarketHistory.com.
U.S. cruise missiles slammed into Baghdad on Thursday, shaking the Iraqi capital with massive explosions after night fell, and U.S. and British forces entered Iraq from Kuwait under cover of an intense artillery barrage.
U.S. Defense Secretary Donald Rumsfeld said a new offensive more powerful than anything seen was still to come and urged Iraqi President Saddam Hussein's defenders to disobey orders and give up.
Hopes the war would be brief boosted the Dow 763 points over the past seven sessions, but worries remain that Saddam may torch oil fields, U.S. forces could get bogged down and the war might spark attacks on the United States.
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 Saddam may have been killed or wounded, according to traders. Iraqi radio said a U.S. missile hit one of the family homes of Saddam in Baghdad, but there were no casualties.
Advancing stocks edged out decliners by a ratio of 19 to 14 on the New York Stock Exchange and 17 to 14 on the Nasdaq. More than 1.4 billion shares changed hands on the Big Board, and more than 1.57 billion on the Nasdaq in moderate trading.
"Underneath it all are very aggressive traders who are trying to play the news flow," said Henry Herrmann, chief investment officer at Waddell & Reed. "The big institutional money doesn't know what to do. Right after you finish buying, some tragic event could happen in New York, London or Paris."
DEFENSE STOCKS DOWN
Defense stocks fell as investors, betting that much of the increased spending on weapons was over, cashed in after a six-session run-up. The Standard & Poor's defense and aerospace index shed 1.56 percent on losses by the likes of defense contractors Northrop Grumman , down $2.50 to $84.95, and General Dynamics , off $1.34 at $57.08.
Goodrich Corp. , a maker of airplane landing gear, led sector decliners by percentage, falling 39 cents, or 2.5 percent, to $15.05.
General Motors Corp. , a Dow member, added 15 cents to $34.21, after a decline earlier in the session. Investment bank Bear Stearns cut its 2003 earnings forecast because of weak March sales and the likelihood of further output cuts by the top automaker. Rival Ford Motor Co. shed 13 cents to $7.50.
El Paso Corp. rallied 90 cents, or 16.4 percent, to $6.40. 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.
Viacom Inc. rose $1.94, or 5 percent, to $40.84 after saying No. 2 executive Mel Karmazin has signed a deal that will keep him with the company through 2006. The move removes uncertainty that has dogged the stock.
Health information provider NDCHealth Corp. plunged $7.43, or 33 percent, to $15.05. The company reported a loss on a host of charges.
LINGERING ECONOMIC WORRIES
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.
The Conference Board said tension ahead of the Iraq conflict helped push its index of leading indicators down 0.4 percent last month, the first dip in five months.
Another report showed 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 output -- the latest sign the conflict had sapped the economy. (With additional reporting by Herb Lash, Brendan Intindola, Denise Duclaux, Elizabeth Lazarowitz, Vivian Chu, Jean Scheidnes and Doris Frankel)