By Wallace Witkowski and Anora Mahmudova, MarketWatch

Dow industrials rebounds from a 248-point deficit

U.S. stocks rebounded from session lows Thursday, paring losses from a selloff fueled by investor worry about European banks and talk of a December rate increase by the Federal Reserve.

Investors were following embattled giant German lender Deutsche Bank, which has been buffeted by concerns about the health of its balance sheet, specifically its ability to withstand a potential $14 billion fine from the U.S. Justice Department. Deutsche Bank's U.S.-listed shares (DBK.XE) were trading off sharply in recent trade.

The Dow Jones Industrial Average fell 138 points, or 0.8% to 18,201, with the largest decliners being Goldman Sachs Group Inc.(GS) and Merck & Co.(MRK) both shedding more than 2%. Earlier, the average was down by as many as 248 points.

The S&P 500 index dropped 11 points, or 0.5%, to 2,159, with most sectors trading lower led by declines in utilities, health-care, and financial shares. Earlier, the index was down by as many as 26 points.

The Nasdaq Composite Index overcame an earlier 64-point deficit and was last down 30 points, or 0.6% to 5,288.

By afternoon trading, focus shifted away from OPEC to European banks, following a report that a handful of derivatives-clearing clients had withdrawn excess cash from Deutsche Bank (http://www.marketwatch.com/story/deutsche-bank-shares-tumble-after-report-says-some-clients-reduce-collateral-on-trades-2016-09-29).

Read:Deutsche Bank shareholders in for more pain (http://www.marketwatch.com/story/more-pain-in-store-for-deutsche-bank-shareholders-2016-09-28)

"Whenever we hear of a banking risk, people think of a domino effect, it's in the back of everyone's mind," said Karyn Cavanaugh, senior market strategist at Voya Financial. "People are trying to compare it to [the European banking crisis] of 2008 and that's a little unsettling."

See:Deutsche Bank crisis threatens to roil global markets (http://www.marketwatch.com/story/a-crisis-in-european-banks-threatens-to-roil-global-markets-2016-09-28)

Add to that a continued grilling (http://blogs.marketwatch.com/capitolreport/2016/09/29/live-blog-and-video-of-house-hearing-about-wells-fargo/)of Wells Fargo & Co. (WFC) CEO John Stumpf on Capitol Hill amplified worries over banks, Cavanaugh said.

"It is expected to see Deutsche Bank shares sell off sharply, because a lot of portfolio managers with fiduciary duties have to sell their position in a stock that is problematic," said Bret Chesney, senior trader at Alpine Partners. "However, the broad market is overreacting to such moves in an individual stock, just as it was overreacting to a jump in oil yesterday."

Busy day for economic data, Fed speakers: Initial jobless claims rose 3,000 to 254,000 in late September, but remained below 300,000 for 82 straight weeks, pointing to a steadily improving labor market.

Meanwhile, revised data suggest that the economy's performance in the spring was slightly better than expected, as business investment wasn't nearly as weak as previously reported. The gross domestic product grew a 1.4% pace in the second quarter.

On Thursday, Philadelphia Fed President Patrick Harker (http://www.wsj.com/articles/feds-harker-says-higher-rates-may-spur-greater-business-investment-1475142348)said he backs a December rate increase if the economy continues to grow as expected, while Atlanta Fed President Dennis Lockhart (http://www.wsj.com/articles/feds-lockhart-sees-rate-increase-before-long-1475151712) said he expects the Fed to be in a position to raise rates soon.

Fed Gov. Jerome Powell (http://www.wsj.com/articles/feds-powell-calls-gradual-increases-the-correct-path-for-interest-rates-1475161800), on the other hand, said the Fed can afford to be patient in gradually raising rates as the economy slowly improves.

Minneapolis Fed President Neel Kashkari is scheduled to participate in a town hall on economic development in Rapid City, South Dakota at 2 p.m. Eastern

Finally, Fed Chairwoman Yellen will take part in a videoconference for the Kansas City Fed at 4 p.m. Eastern.

The U.S. economy grew (http://www.marketwatch.com/story/second-quarter-gdp-raised-to-14-from-11-2016-09-29)at a fractionally faster pace during spring, a government report said. Meanwhile, weekly jobless claims rose slightly (http://www.marketwatch.com/story/jobless-claims-rise-slightly-to-254000-2016-09-29), but remained at historically low levels.

The main indexes rose Wednesday fueled by a surge in oil prices that boosted energy shares. The Organization of the Petroleum Exporting Countries reached an "understanding" over limiting crude production and is considering cutting output to between 32.5 million and 33 million barrels a day, The Wall Street Journal reported (http://www.marketwatch.com/story/opec-reaches-agreement-on-need-to-cut-oil-output-2016-09-29).

Read:OPEC has a terrible record adhering to quotas, oil analysts say (http://www.marketwatch.com/story/opec-has-a-terrible-record-adhering-to-quotas-oil-analysts-say-2016-09-29)

The price of West Texas Intermediate crude surged 5% on the news Wednesday, driving energy stocks higher. Oil prices advanced 1.5% to $47.76 a barrel Thursday while doubts lingered over the details of the planned agreement.

Read:Doubts linger over OPEC's preliminary deal on output (http://www.marketwatch.com/story/doubts-linger-over-opecs-preliminary-deal-on-oil-output-2016-09-28)

Oil prices are still facing a "major range boundary that mirrors broader consolidation trends in the financial sector," said John Kicklighter, chief currency strategist at DailyFX, in a note to clients.

"It will take more than a cap on supply from even this large producer of a vital commodity to change the sentiment of the entire financial system; and developing a trend independent of general congestion is fraught with danger," said Kicklighter.

Markets rallied across Asia and Europe and the Japanese yen fell (http://www.marketwatch.com/story/yen-pulls-back-dollar-higher-as-investor-appetite-for-risk-heats-up-2016-09-29) as oil-price gains triggered an appetite for riskier assets such as stocks. The yen is traditionally viewed as place to hide when investors fear economic or global uncertainty.

Read:Government shutdown avoided after Congress passes short-term spending bill (http://www.marketwatch.com/story/government-shutdown-avoided-for-now-after-congress-passes-short-term-spending-bill-2016-09-29)

Stocks to watch:PepsiCo Inc.(PEP)(PEP)rose 1% after the soft-drinks maker posted a jump in third-quarter profit.

ConAgra Foods Inc.(CAG) shares surged 7.6% after the company swung to a first-quarter profit after a steep loss in the same period last year.

Costco Wholesale Corp.(COST) results are due after the closing bell. Shares were down 0.8% at last check.

Inter-Cellular Therapies Inc.(ITCI) shares plunged 64% over news of a disappointing performance in a clinical trial of its schizophrenia drug (http://www.marketwatch.com/story/intra-cellular-therapies-shares-plunge-68-after-study-results-2016-09-28).

(http://www.marketwatch.com/story/intra-cellular-therapies-shares-plunge-68-after-study-results-2016-09-28)EBay Inc.(EBAY) shares rose 1.5% after Deutsche Bank reportedly upgraded shares to buy with a $40 per share price target.

(http://www.marketwatch.com/story/intra-cellular-therapies-shares-plunge-68-after-study-results-2016-09-28)Progress Software Corp.(PRGS) fell 3.5% after the software company missed fiscal third-quarter sales and earnings forecasts (http://www.marketwatch.com/story/progress-software-shares-fall-9-after-results-miss-targets-2016-09-28).

Pier 1 Inc.(PIR) rallied 9.5% after posting narrower-than-expected losses (http://www.marketwatch.com/story/pier-1-shares-rise-on-narrower-than-expected-losses-2016-09-28) late Wednesday.

Other markets: The Stoxx Europe 600 index was up a fraction, led by banks and energy stocks. Asian markets (http://www.marketwatch.com/story/energy-related-stocks-help-rally-asia-markets-as-investors-cheer-opec-deal-2016-09-29) performed well, led by a 1.4% close higher for the Nikkei 225 index , which was lifted by gains for exporters, energy companies and a weak yen.

Gold futures (http://www.marketwatch.com/story/gold-futures-settle-higher-after-late-session-reversal-2016-09-29) settled 0.2% higher at $1,326 an ounce, while the dollar was up about 0.2%. Dollar-priced assets tend to move inversely to the greenback.

--Barbara Kollmeyer in Madrid contributed to this article.

 

(END) Dow Jones Newswires

September 29, 2016 14:40 ET (18:40 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.