Stocks Notch Strong Finish After Reeling From Fake Tweet

By JONATHAN CHENG, MIKE CHERNEY and JERRY DICOLO

The market dropped, but just as quickly rebounded, following a hoax tweet from the Associated Press, Jonathan Cheng reports.

U.S. stocks ended a tumultuous day with strong gains after a false tweet briefly sent financial markets veering on Tuesday, underscoring technology's role in tightly linking global markets.

The Dow Jones Industrial Average briefly plunged Tuesday afternoon before finishing with a gain of 152.29 points, or 1.05%, to 14719.46. Oil also briefly dipped, while U.S. Treasury bond prices soared, after a tweet from the Associated Press's Twitter account claimed that there were two explosions in the White House and that President Barack Obama had been injured.

Markets quickly swung back after the Associated Press said on its corporate website that its account had been hacked. The White House confirmed that there had been no incident.

At the height of the confusion, the blue-chip Dow plunged by about 145 points between 1:08 p.m. and 1:10 p.m. Eastern time, following the erroneous tweet. But stocks soon recovered.

Observers said the episode highlighted the growing use by players in financial markets of social media such as Twitter and Facebook, and underscored the dangers of security breaches at a time when many investors are quick to trade on news.

Keith Bliss, senior vice president with New York brokerage Cuttone & Co. on the trading floor of the New York Stock Exchange, said he heard a slow wave of noise across the exchange floor as traders responded to the first tweet.

"We all started looking at it to figure out what was going on, and just as quickly there was another wave of noise after the AP denied the story," Mr. Bliss said. "Just goes to show, you shouldn't have a knee-jerk reaction to anything that comes across Twitter."

The stock move was echoed by similar gyrations in other markets, where oil momentarily lost 0.7% before recovering, and the CBOE Market Volatility Index, the "fear gauge" known as the VIX, spiked 9% before falling back to its level just a few minutes earlier, down 5% on the day.

Trading volumes in S&P 500 e-mini contracts on the Chicago Mercantile Exchange, futures contracts tracking the S&P 500, shot up to 83,388 traded contracts at 1:09 p.m. ET, from about 295 traded contracts just two minutes earlier. In all, some 314,000 contracts changed hands in five minutes.

The dollar fell against the Japanese yen after the AP's tweet, dropping as low as ¥98.58 from ¥99.27 before the tweet. It snapped back from all losses within four minutes.

Among precious metals, gold futures saw a brief bump of more than $5 per troy ounce but gold quickly fell back to its previous level, around $1,409; silver futures moved less than $1 per troy ounce and also reverted to their prior level when it became clear the report was a hoax.

At about 1:10 p.m., yields on 10-year safe-haven Treasurys fell about 0.05 percentage points, to 1.648% from 1.703%, according to Tradeweb. But by 1:20 p.m., yields were back up to 1.694%.

"It's a huge drop in such a short period of time, and it could only have been due to some type of huge flight to quality resulting from geopolitical concerns," said Gary Pollack, managing director at Deutsche Bank DBK.XE +5.13% Asset & Wealth Management. "An explosion at the White House that was rumored to have occurred would certainly be a good example of something like that."

Peter Donovan, an oil-options broker at Vantage Trading working on the floor of the New York Mercantile Exchange, said some traders quickly exited positions after the erroneous report of a terrorist attack. "That sort of stuff gets our attention, as you can imagine…but it was immediately met with skepticism," he said.

As the false Twitter report first spread, a staffer at Los Angeles-based JonesTrading Institutional Services LLC said over a companywide loudspeaker: "Careful, those things can be hacked," said Tom Carter, a managing director at the brokerage.

"We made sure no one made a call on it, and sure enough, look what happened," Mr. Carter said. "You've really got to be careful in those moments. It would be irresponsible to start calling clients about it."

Adding to the investor confusion, the website of retail stock brokerage Charles Schwab SCHW +1.04% couldn't be accessed during the final minutes of stock trading. In a Twitter message, the company said: "We are experiencing technical issues with our site and mobile app and are working on resolution."

The momentary scare came on a day of broad gains for the market, the third-straight advance for the major U.S. large-cap benchmarks. The blue-chip Dow finished near the day's highs, while the Standard & Poor's 500-stock index added 16.27 points, or 1.04%, to 1578.78. All 10 sectors of the index finished in positive territory. The Nasdaq Composite, meanwhile, advanced 35.78 points, or 1.11%, to 3269.33.

Financial stocks led the market higher following a pair of strong reports on the housing market and some dividend increases in the sector. Bank of America BAC +2.99% and Travelers TRV +2.09% rose after the insurer raised its dividend and reported quarterly earnings that topped expectations.

DuPont DD +4.13% climbed the most among Dow components, gaining after it boosted its dividend and beat analysts' earnings estimates. United Technologies UTX -0.79% fell to lead the Dow decliners after it missed analysts' earnings and revenue estimates.

Netflix NFLX +24.44% soared to lead the S&P 500 components after the movie-subscription company reported better-than-expected first-quarter results, amid strong growth in new U.S. subscribers. The stock is on pace to finish at its highest level since September 2011.

"We're not hearing the dour reports out of companies that we had expected to see," said Mark Luschini, chief investment strategist with Janney Montgomery Scott, which oversees $2.6 billion in its asset-management arm. "It's the qualitative aspects of it, and not just the numbers themselves, that have been relatively decent."

In economic headlines, Markit Economics' composite purchasing managers index for the U.S. showed a reading of 52 for April. Readings above 50 signal expansion.

Meanwhile, the Federal Housing Finance Agency's February home-price index showed a monthly rise of 0.7% in February, while new-home sales for March rose 1.5% to a seasonally adjusted annualized rate of 417,000. Both readings on the housing market were roughly in line with expectations, and bolstered shares of home builders. PulteGroup, PHM +5.95% D.R. Horton DHI +5.32% and Lennar LEN +6.86% rose.

European markets rallied. The Stoxx Europe 600 index climbed 2.4%, as signs of further weakening of the euro-zone economy sparked hopes of a shift away from austerity and toward policies that stimulate growth.

On Monday, European Commission President José Manuel Barroso said the austerity policy the European Union has been pursuing no longer has the public backing needed to work. The European Central Bank meets next week, amid growing hopes for stimulative action by the central bank.

Markit's purchasing managers index for the euro zone was unchanged at 46.5 in April. In the region's largest economy, Germany, the composite PMI fell to a six-month low of 48.8 from 50.6 in March. Meantime, France's PMI rose to 44.2 in April, from a four-year low in March. Germany's DAX 30 index gained 2.4% for its best day in five months, while France's CAC-40 jumped 3.6% for its biggest gain since last August.

"In Europe, it's all about the rate of change—we're going from horrible data to not-so-bad data, and the market will rally off that," said Andres Garcia-Amaya, global market strategist at the mutual-fund arm of J.P. Morgan Asset Management, which oversees $400 billion. More generally in Europe, Mr. Garcia-Amaya argued, "they can't just use austerity without a plan to help these countries grow. If we see a change from leaders on that perspective, that'll be very positive for Europe."

In Asia, China's Shanghai Composite tumbled 2.6% after HSBC's HSBA.LN +1.34% preliminary purchasing manager's index for April declined more than expected, slipping to 50.5 from 51.6 in March. Japan's Nikkei Stock Average declined 0.3%.

Gold futures finished the day down 0.9% to $1,408.60 an ounce, while silver fell 2.2% to an October 2010 low. Crude-oil futures ended flat at $89.18 a barrel. The dollar rose against the euro and the yen. Demand for Treasurys slipped, nudging the yield on the benchmark 10-year note up to 1.70%.

In other stock movers, MetLife MET +5.45% rose after the insurer raised its dividend for the first time since 2007, coming after clashes with federal regulators on its capital requirements. The stock had given up 11% since mid-March.

Apple, AAPL +1.87% which climbed 1.9% in regular trading, rose 4.5% in after-hours trading after reporting quarterly earnings and revenue that beat expectations, while boosting its dividend and expanding its buyback program.

Coach COH +9.80% surged after the luxury-goods company beat earnings and revenue expectations, raised its dividends and unveiled a succession plan.

—Kaitlyn Kiernan, Matt Jarzemsky, Alexandra Scaggs, Chris Dieterich, Nicole Hong and Christian Berthelsen contributed to this article.

Write to Jonathan Cheng at jonathan.cheng@wsj.com