Stocks rise on report of government aid for AIG

NEW YORK - Stocks turned higher Tuesday after CNBC reported that the government is considering extending aid to troubled insurer American International Group Inc.

A partial recovery in shares of AIG and several other financial companies helped the sector show signs of life a day after leading Wall Street to its worst session in years. Investors also grew hopeful about a Federal Reserve interest rate cut.

Worries about AIG's well-being intensified Monday and early Tuesday after several ratings agencies downgraded the company. Lower ratings can add to the amount of money the already cash-strapped company has to set aside. Investors fear that a failure by the world's largest insurer would touch off a wave of financial turmoil.

But CNBC's report said the government is at least considering extending a financial lifeline to the company. AIG fell 66 cents, or 14 percent, to $4.10 after being down nearly 75 percent in earlier trading.

Markets around the world were still reeling from the bankruptcy filing of Lehman Brothers Holdings Inc. and the quickly assembled weekend sale of Merrill Lynch & Co. to Bank of America Corp. 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.

The Fed's regularly scheduled meeting, which many economists had expected would be a pro forma occurrence, is now much anticipated, especially after central banks around the world have loosened money supplies this week. The banks are hoping an injection of capital will help soothe markets following the most serious tumult of the 14-month-old credit crisis.

In late morning trading, the Dow rose 80.12, or 0.73 percent, to 10,997.63. The Dow fell as much as 175 in the opening minutes of the session; on Monday, the Dow lost 504 points, its largest drop since the September 2001 terror attacks.

Broader stock indicators also turned higher. The Standard & Poor's 500 index rose 8.84, or 0.74 percent, to 1,201.54, and the Nasdaq composite index rose 15.30, or 0.70 percent, to 2,195.21.

Bond prices came off their highs as investors turned away from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was flat at 3.41 percent from late Monday.