$$\frac{dy}{dx}=\frac{2xy}{x^2+y^2}\quad\to\quad (x^2+y^2)dy=2xydx$$
$$x^2=X \quad\to\quad (X+y^2)dy=ydX \quad\to\quad y\frac{dX}{dy}=X+y^2$$
$y\frac{dX}{dy}-X=y^2 \quad$is a linear ODE which general solution is easy to find :$\quad X=y^2+2cy$
The general solution of $\quad \frac{dy}{dx}=\frac{2xy}{x^2+y^2}\quad$ is : $\quad y^2+2cy=x^2$
$$(y+c)^2-x^2=c^2$$
$$y(x)=-c\pm\sqrt{c^2+x^2}$$
$y(x)$ is the equation of a conic section of the hyperbola kind, which center is $(0,-c)$ . The asymptotes are $\quad y=-c+x\quad$ and $\quad y=-c-x$.
$y'=\pm\frac{x}{\sqrt{c^2+x^2}}\quad\to\quad y'(0,0)=0\quad$ satisfies the given specification.
The condition $\quad y(-1)=-0.001\quad$ implies $\quad c=\frac{x^2-y^2}{2y}=\frac{1-10^{-6}}{-0.002}\simeq -500$
The "blow-up" is only due to the big value of $|c|$. In reality this is the normal behaviour of hyperbola.
Around $x=0$, the equivalent of the function is :
$$y=-c\left(1-\sqrt{1+\frac{x^2}{c^2}}\right) \simeq \frac{x^2}{-2c}\simeq \frac{x^2}{1000}$$
which is close to a parabola as expected.

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