Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady.
Anticipation that troubled insurer American International Group would come up with a much-needed cash injection made room for many financial stocks to rally.
Meanwhile, the Fed's decision not to change interest rates, while not popular with investors clamoring for a rate cut to boost market sentiment, appeared to sidestep the second-guessing about the health of the economy that can follow a cut in difficult times.
"This was the right thing to do," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "I just don't think the Fed should be responding to the financial market crisis at this stage."
Reports throughout the day that AIG was working on a loan to remain afloat corralled some of the market's worries about the world's largest insurer. The stock fell $1.01, or 21%, to $3.75 after trading as low as $1.25. After the markets closed, the company reached a deal to get an $85-billion loan from the Fed in return for an 80% stake in the company.
The Dow, which plunged 504 points Monday, rose 141.51, or 1.3%, to 11,059.02 Tuesday after falling about 100 points immediately after the Fed's interest-rate announcement.
Broader stock indicators advanced. The Standard & Poor's 500 index rose 20.90 points, or 1.8%, to 1,213.60, and the Nasdaq composite index rose 27.99 points, or 1.3%, to 2,207.90.
Bonds fluctuated before closing lower. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.44% from 3.41% late Monday. The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell $4.56 to settle at $91.15 a barrel on the New York Mercantile Exchange, bringing its two-day decline to $10 as investors placed bets that a slowing economy would crimp demand. Gas prices continued to climb following the disruption to supplies brought by Hurricane Ike, though they were expected to moderate in the coming weeks.
Markets around the world have been reeling this week from the bankruptcy filing of Lehman Bros. Holdings and the quickly assembled weekend sale of Merrill Lynch & Co. to Bank of America. Investors worry that tectonic shifts in the power structure of Wall Street signal that the financial sector's trouble with imperiled credit are far from over.
But the partial recovery in shares of AIG as well and some of the other financial stocks that led the market lower Monday were a welcome boost to investor sentiment. JPMorgan Chase & Co. rose $3.74, or 10%, to $40.74, while Wells Fargo & Co. rose $3.93, or 13%, to $34.93.
Names that investors often rely on as safe bets in a weak economy also rose. Wal-Mart Stores advanced 51 cents to $62.14, while McDonald's rose 57 cents to $64.29.
The market showed little reaction to the first drop in the Labor Department's Consumer Price Index in nearly two years. The CPI fell 0.1% last month, while the index excluding food and energy costs edged up a mild 0.2%. Both figures met analyst expectations.
In corporate news, Goldman Sachs Group, the larger of the two big independent investment banks on Wall Street, reported that quarterly earnings fell 70% from a year earlier. The profit results were better than Wall Street had expected, though revenue fell short. The stock fell $2.49 to $133.01.
Morgan Stanley, Goldman's smaller rival, fell $3.49, or 11%, to $28.70, then reported better-than-expected quarterly results after closing.
Dell warned that it saw a further softening in global demand in the current quarter. The computer manufacturer fell $2.01, or 11%, to $15.98.
The Russell 2000 index of smaller companies rose 20.89 points, or 3%, to 710.65.
Overseas, markets in Asia fell sharply Tuesday after being closed Monday. Indexes fell about 5% in Japan and Hong Kong, 3% in Britain and 2% in Germany and France.