NEW YORK - US stocks staged a late rebound on Thursday as the market bounced off lows, shaking off fears about the financial sector and a battle for survival by investment giant Lehman Brothers.

In a dramatic reversal from a weak opening, the Dow Jones Industrial Average climbed 164.79 points (1.46 per cent) to close at 11,433.71.

The tech-heavy Nasdaq jumped 29.52 points (1.32 per cent) to 2,258.22 and the broad-market Standard & Poor's 500 index added 17.01 points (1.28 per cent) to 1,249.05.

The rebound came despite a further plunge at Lehman Brothers, a venerable Wall Street firm seen as near collapse if it does not find a partner to give it a capital injection.

Lehman shares plunged another 41.7 per cent to close at US$4.22 (S$6.06), extending massive losses that have wiped out 90 per cent of the value of the 158-year-old Wall Street firm and raised fears about its survival.

'The broader market managed to shake off fears of a failure at Lehman, however'. 'The change in sentiment is impressive,' analysts at Briefing.com said.

'There is no single, distinctive news item behind the push.' Mr Gregory Drahuschak at Janney Montgomery Scott said the volatility is not surprising.

'The recent market psychology has had many people hoping for a single event that will be the catalyst to turn the market around,' he said.

'We have stated this before, but we find this to be too convenient and therefore not likely to happen. More likely is the possibility that the market merely crawls its way higher with no event or definable catalyst to alert investors of the change in sentiment.'

The turnaround was largely led by the financial sector.

Washington Mutual, a major bank facing turmoil, rallied at the close to gain 22 per cent at US$2.83 after a 24 per cent slide early in the session.

JPMorgan Chase added 5.7 per cent to US$41.65 and Wells Fargo vaulted 6.8 per cent to US$33.85.

But Merrill Lynch, a major Wall Street house with problems similar to those at Lehman, skidded 16.6 per cent to US$19.43.

On the economic front, the market was unsettled in early trade by news that the US trade deficit rose by a worse-than-expected six per cent in July to US$62.2 billion dollars on high oil prices and surging Chinese imports.

'The recent surge in the trade deficit indicates the unemployment rate will continue rising and economic growth will slow or turn negative in the third and fourth quarters,' said Mr Peter Morici, a University of Maryland economist.

But Mr Joel Naroff at Naroff Economic Advisors said the report was skewed by high oil prices, which have since retreated.

'At first blush, this report looks ugly. It is far from that,' he said. 'The energy situation has already been unwound and there could be a massive cut in the trade deficit was that works through the August and September numbers.'

Among other firms in focus, the New York Times Company rallied 9.1 per cent to US$15.23 after regulatory filings showed Mexican billionaire Carlos Slim agreed to take a 6.4 per cent stake in the newspaper giant.

The yield on the 10-year US Treasury bond dipped to 3.622 per cent from 3.641 per cent and that on the 30-year bond eased to 4.214 per cent from 4.225 per cent.

Bond yields and prices move in opposite directions. -- AFP