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Google's stock is up 10% today, and the stock market is up over 250 points (at 2 PM EST), and I don't think the twin spike is merely a coincidence.

Why? As I wrote yesterday, the market looks to major tech players like Google, Apple and IBM, just to name a few, to act as virtual "canaries in the gold mine" to gauge the short-term health of the U.S. economy, and, by extension, the stock market.

So when Google comes out with a great story on web traffic and revenue growth for the third-quarter, that is going to feed into investor perceptions that maybe, just maybe, there are ample reasons to get back into the stock market, and I think that's reflected in what we are seeing today.

The internet giant is cautiously confident that it will survive the current economic downturn, although Google is taking nothing for granted. "We are all in uncharted territory," Google Chief Executive Schmidt told analysts yesterday. "We are very realistic about the macro environment, but we are optimistic about Google's future."

Job one for Google is to cut spending. As Reuters put it earlier today, "Wall Street analysts were pleased by efforts to rein in expenses. Many have complained for years at how Google was "spending like drunken sailors" to hire new employees and install computer data center capacity as its growth exploded."

But Google only hire 500 staffers for Q3, bringing the total number of employees up to 20,000. And of the 500 hired, half were much-needed engineers and research technicians.

Job two is to make it as inexpensive and easy as possible for advertisers to spend precious dollars on online marketing. Although most of Google's growth in the advertising area has been overseas (international sales rose a whopping 41% in Q3), Google looks like its focus on ad spending - and maybe a little bit of hand-holding and encouragement in the form of discounted pricing models - has helped stabilize its core business.

Still Google's expected growth rate of 26-to-37 percent for Q3 are well below the 57 percent growth rate we saw from Google during the same period in 2007. But as one Wall Street wag said today, "That's still good enough given this economic climate."

Hey, buying time until the economy heats up is smart business. By focusing on its core online ad business and by cutting expenses, Google seems to be rebounding from its stock woes of the first nine months of 2008, when its stock price was sliced in half.

This earnings report should accelerate that rebound nicely. And help the rest of the market along the way.

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