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Stocks close mixed as rally fades: Dow up, Nasdaq dips

Adam Shell
USA TODAY

An early stock rally on Wall Street faded as stocks gave back strong gains and closed mixed Thursday.

Investors remain cautious as they await a key reading on U.S. employment Friday and eye moves by global central bankers, including the Federal Reserve, to deal with recent market turbulence around the world.

Stocks jumped early in the trading session after yesterday's big rebound rally, as Wall Street digested good data on the services portion of the U.S. economy and reassuring comments from the European Central Bank. But investors were unable to hang onto gains as volatility continues to rule on Wall Street.

The Dow Jones industrial average rose 24 points, or 0.1%, to close at 16,375, after being up as much 200 points earlier. That comes after the blue-chip index rallied 293 points on Wednesday and after a three-day drop of nearly 600 points on Tuesday.

The Standard & Poor's 500 stock index gained 2 points, or 0.1%, to 1951, after having been up 25 points. The Nasdaq composite fell 17 points, or 0.4%, to 4733 as the tech-heavy index fell back into negative territory for the year.

Traders work on the floor of the New York Stock Exchange on Sept.  2, 2015.

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Wall Street will also be closely monitoring central banks in coming days.

Earlier today, the European Central Bank kept its key interest rate unchanged at 0.05%. ECB president Mario Draghi could provide more color on whether the eurozone central bank will do even more to stimulate growth and fight off deflationary pressures in a press conference this morning. In a sign that the ECB might do more, Draghi said at the press conference that the ECB is seeing a slower increase in inflation and hinted that it would do more, if needed, according to a report from cable business channel CNBC. Markets appear to be rallying on Draghi's "dovish" statements.

The ECB already has rates near zero percent and have an ongoing bond-buying program, dubbed QE, to help boost inflation and economic growth.

"The ECB leaves door open for more QE," Barclays' analyst Philippe Gudin told clients in a research note.

Stocks early on also got a lift from a strong August reading on the services sector of the economy, which topped expectations and stayed near a 10-year high notched in July.

Investors are also bracing for the release of the August U.S. jobs report on Friday. A lot is riding on this employment report, as a very strong report could give the Fed further ammunition to raise short-term interest rates for the first time in nearly a decade. Despite warnings from the International Monetary Fund that the Fed should hold off on hiking rates, a continuation of good economic data in the U.S. will make the Fed's decision that much more difficult. The Fed will have to weigh the recent global market turbulence and economic weakness in China with an improving economy here at home.

The Fed meets next on Sept. 16-17.

In European trading today, stocks were in rally mode as traders there reacted to news out of the ECB. Shares of the FTSE 100 in London were up 1.8%, Germany's DAX was 2.7% higher and shares of the CAC 40 in Paris were up 2.2%.

In an ominous note, Robert Shiller, Yale economics professor and author of Irrational Exuberance, told CNBC this morning that "this is a dangerous time" for the stock market and said the Dow, which closed last night at 16,351, could fall as low as 11,000, a potential drop of more than 30% from current levels. Shiller cited the rising valuation of the stock market versus historical averages as a key reason for concern.

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