A snapback in stocks wasn't unexpected as carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed. Without a bailout plan in place to absorb soured mortgage debt and other bad loans from banks' balance sheets, investors are wondering what might restore confidence in lending.
While stocks turned higher, moves in the credit markets were more ominous. The benchmark London Interbank Offered Rate, or LIBOR, that banks charge to lend to one another rose sharply Tuesday, making it more expensive and difficult for consumers and businesses to borrow money. In addition, credit card debt and more than half of adjustable-rate mortgages are tied to LIBOR, so an increase isn't welcome for many consumers.
LIBOR for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, rose to 5.27 percent, from 5.22 percent Monday.
Many on Wall Street had expected the government's plan would help sweep away some of the fear and pessimism that has hobbled credit markets, which are where businesses turn to finance their day-to-day operations. The worry is now basic operations like making payroll will be difficult or perhaps impossible for some companies. Critics of the plan said, however, that it was too costly and wouldn't have done enough to jump-start lending.
While U.S. political leaders have vowed to revisit the issue, the House isn't slated to meet again until Thursday. To maintain pressure, President Bush said in a statement from the White House early Tuesday that the damage to the economy will be "painful and lasting" unless Congress passes the bailout measure.
On Wall Street, many traders likely will proceed cautiously while they gauge prospects for resurrecting the bailout effort, which was backed by leaders of both parties.
Traders also will likely focus on how the bloodshed will look on paper. Tuesday marks the final session of the third quarter - and what is typically the worst month for the stock market - so some portfolio managers might try to do what they can to dress up their performance. Others might simply wish to dump holdings in an unpopular corners of the market like the financial sector.
In midmorning trading, the Dow Jones industrial average rose 237.19, or 2.29 percent, to 10,602.64 after falling more than 777 points, or nearly 7 percent, Monday to its lowest close in nearly three years. It was the blue chips' largest point drop and 17th largest percentage drop. The percentage decline was far less severe than the 20-plus-percent drops seen in the stock market crash of October 1987 and before the Great Depression.
Broader stock indicators also bounced higher Tuesday. The Standard & Poor's 500 index rose 34.25, or 3.10 percent, to 1,140.67, and the Nasdaq composite index rose 53.31, or 2.69 percent, to 2,037.04.
The S&P fell 8.79 percent Monday, while the Nasdaq lost 9.14 percent.
The yield on the 3-month Treasury bill rose Tuesday to 0.67 percent from 0.14 percent late Monday. The yield fell Monday as investors clamored for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71 percent from 3.58 percent late Monday. The dollar rose against other major currencies and gold prices advanced.
While investors focused on what might come from Washington this week, Wall Street was cheered by several economic readings.
A private research group reported that consumer confidence rose unexpectedly in September. The Conference Board said Tuesday its Consumer Confidence Index rose to 59.8 from a revised 58.5 in August; Wall Street had expected a reading of 55.5, according to Thomson/IFR. The reading, which doesn't reflect attitudes following Monday's steep stock market sell-off, remains near a 16-year low.
The Chicago Purchasing Managers' index, which measures business conditions across Illinois, Michigan and Indiana, came in at 56.7 compared with 57.9 in August - a second straight month of a strong reading.
Light, sweet crude rose $3.01 to $99.38 on the New York Mercantile Exchange. Oil fell more than $10 a barrel Monday as investors worried that a weaker economy would curtail demand.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to a light 285.3 million shares.
The Russell 2000 index of smaller companies rose 6.02, or 0.92 percent, to 663.74.
Overseas, Japan's Nikkei stock average fell 4.12 percent. But Hong Kong's Hang Seng index rose 0.76. In afternoon trading, Britain's FTSE 100 rose 0.73 percent, Germany's DAX index fell 0.70 percent, and France's CAC-40 rose 1.15 percent.
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