"[The news] was perceived as very positive and without confirming anything, the market rallied 100 points on the news," said Jason Weisberg, senior vice president at Seaport Securities.
Citing unnamed sources, Reuters reported that Greece agreed to a new five-year austerity plan with new tax hikes and spending cuts. That news immediately calmed some jitters about Europe's debt crisis, and helped U.S. stocks regain some lost ground.
At the closing bell, the Dow Jones industrial average (INDU) was down only 59 points, or 0.5%, compared to much steeper losses of as much as 234 points earlier in the session.
The S&P 500 (SPX) lost 3 points, or 0.3%. The Nasdaq Composite (COMP) added 17 points, or 0.7%.
The Federal Reserve's dim economic outlook put investors in a funk from the get-go Thursday morning. A weak initial claims report only exacerbated those jitters.
Later, an announcement that the government plans to tap into the Strategic Petroleum Reserve pummeled oil prices and the entire energy sector. The International Energy Agency said its 28 members would release 60 million barrels of oil, half of which will come from the SPR.
Crude oil for August delivery plunged 4.6%, settling at a four-month low of $91.02 a barrel.
Before the market opened, a report on initial claims brought disappointing news, showing 429,000 Americans filed for their first week of unemployment benefits last week.
That was far weaker than the 413,000 claims economists had expected and marked the 11th straight week that claims have been above 400,000.
Later in the morning, a report from the Census Department showed sales of new homes fell 2.1% in May, after rising for two months in a row, as the housing market continues to struggle.
The dollar managed modest gains versus the euro, Japanese yen and the British pound.
Gold futures for August delivery fell $32.90, or 2.1%, to $1,520.50 an ounce. And silver prices sank 4.7% to $35 an ounce. Copper prices slid 1.2% and natural gas prices dropped 2%.
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