A day after the Federal Reserve slashed its two key interest rate targets by a half-percentage point and ignited a short-lived rally on Wall Street, government figures on the economy released Thursday morning sent the markets down at open and raised fresh fears about the health of the U.S. economy. But the markets rebounded by mid-morning and the builder stocks resumed their rally.

The Commerce Department reported that consumer spending was essentially flat in December. The personal consumption expenditures index rose only 0.2%, while personal income and disposable income each increased 0.5%. The index was down sharply from the revised 1% gain it registered in November, when the personal and disposable income numbers were both up 0.4%.

Further depressing stocks at the open was the latest jobs data from the Labor Department, which reported an increase of 69,000 in initial jobless claims for the week ending Jan. 26, to 375,000, from the prior week. The 4-week moving average was 325,750, an increase of 10,250 from the previous week's revised average of 315,500.

Despite the data, however, stocks took back some of their losses by 10 a.m., and a rally ensued, with the Dow up 99 points in mid afternoon trading. Builder stocks continued their recent rally, led by Pulte Homes (NYSE:PHM), which reported earnings Wednesday evening and was up 14% to $15.49 at 2:05 p.m. Standard Pacific, a heavily shorted stock, was among the biggest gainers on the street, with a gain of 21.43% to $3.74 after trading as high as $3.99 earlier in the day. The S&P home builder ETF (AMEX:XHB) was up 7.7% to $21.91 at 2:08.