Stock buybacks among companies in the S&P 500 surged by 128.3 percent in the third quarter from the year-ago period, according to data from Standard & Poor's.

Preliminary data indicate that shares repurchases totaled $79.56 billion in the quarter, up from the $34.85 billion during the third quarter of 2009.

Also, the $79.56 billion figure is 2.5 percent higher compared to the second quarter of 2010, and marks the fifth quarter in a row that S&P 500 companies have increased their stock buyback activity.

The 128 percent increase in share repurchases marks the full return of corporate participation in the equity markets, says Howard Silverblatt, Senior Index Analyst at S&P Indices. While we do not expect a return to the 2005-2007 buyback bonanza, we do see this as a strong, positive sign for the overall health of the market.

Silverblatt also said that over the past three quarters, the number of companies taking part in a stock buyback program has leveled off, with 261 companies purchasing their shares during the third quarter compared to 257 in the second quarter and 251 in the first quarter of this year.

On a sector basis, Information Technology companies continue to dominate the buyback market accounting for 28.6 percent of all buybacks (up from 27.3 percent in the second quarter), with Health Care declining significantly to 13.4 percent from 19.0 percent last quarter.

Indeed, three of the four biggest expenditures for buybacks during the third quarter were recorded by Information Technology companies, with Microsoft (Nasdaq: MSFT) spending $4.4 billion, Hewlett-Packard (NYSE: HPQ) spending $4.0 billion and International Business Machines (NYSE: IBM) spending $3.7 billion.

Energy increased from 4.0 percent of all buybacks to 6.4 percent.

Silverblatt indicated that over the past three quarters several companies have increased their buybacks in excess of their current use for employee options and M&A activity.

For a few issues will see an earnings impact on their upcoming fourth quarter earnings per share in comparison to their fourth quarter EPS of last year due to share count reduction, he said.

For the fourth quarter of 2010, Silverblatt expects buybacks to increase slightly. For the first part of next year, he thinks companies will continue to be “cautious” with their buyback plans, and refrain from purchasing an “excessive” amount of shares.

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