Broad advance as investors scoop up select issues after previous session's 778-point slump on the Dow on bailout bust.
NEW YORK (CNNMoney.com) -- Stocks bounced Tuesday morning, one day after Congress's failure to pass a $700 billion bank rescue plan triggered a massive selloff that sent the Dow down nearly 778 points, in its biggest single-day point drop ever.
The Dow Jones industrial average (INDU) added 260 points or 2.5% over an hour into the session. The Standard & Poor's 500 (SPX) index rose 3.3% and the Nasdaq composite (COMP) gained 2.8%.
Stocks plunged Monday after the House of Representatives shot down the proposed $700 billion bank rescue plan, surprising investors who had thought that a bipartisan compromise on the deal had been reached over the weekend.
The plan involves the Treasury Department buying up bad mortgage bets from banks, enabling them to start lending to each other again and ultimately defrosting the credit markets. Lawmakers had fought to modify the plan with more taxpayer protections.
However, taxpayers were not entirely swayed, and voter complaints about the plan ahead of the election contributed to House Republicans largely voting against the proposal.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other officials conceived the plan in the wake of a series of bank failures and mergers amid the housing market collapse and subsequent credit market freeze up. Frozen credit markets mean banks are clinging to cash, making it difficult for businesses and individuals to get needed loans.
Stocks tumbled Monday ahead of the vote on bets that either the plan wouldn't get Congressional approval, or even if it does, that it won't be enough to relieve credit markets. On Tuesday, President Bush urged lawmakers to take action on the bill when they return to Washington Wednesday.
The credit markets remained tight Tuesday, although they showed a little improvement from Monday. The three-month Treasury bill, seen as the safest place to park money in the short term, rose to 0.61% from 0.14% late Monday. Earlier this month, the three-month bill fell to a 68-year low around 0% as panic gripped financial markets.
The Dow's 7% decline Monday was the worst single-day drop since Sept. 17, 2001 - the first trading day after the September 11 attacks. The S&P and Nasdaq both lost around 9%, seeing the biggest single-day percentage drop since the October 1987 crash.
The day's loss knocked out roughly $1.2 trillion in market value, according to a drop in the Dow Jones Wilshire 5000, the broadest measure of the stock market. It was the first day markets lost more than $1 trillion ever.
Worldwide markets were under pressure Tuesday, with Asian markets ending lower and European markets mixed in the afternoon.
Economic news: A closely watched measure of the housing sector showed that home prices in July fell by the largest rate ever, although the pace of monthly declines is slowing.
The Chicago PMI, a key manufacturing read, fell to 56.7 in September from 57.9 in the prior month. However, the decline was smaller than economists were expecting. Any reading over 50 suggests growth.
The September consumer confidence index topped forecasts, the Conference Board reported. Confidence rose to 59.8 from a revised 58.5 in August, surprising economists who thought it would fall to 55.
Oil and gold: U.S. light crude oil for November delivery rose $1.97 to $98.34 per barrel on the New York Mercantile Exchange. On Monday, oil prices plunged $10.52 a barrel in the second-biggest one-day plunge ever.
Oil prices had plummeted over $55 after peaking at $147.27 a barrel on July 11, as investors bet that sluggish global growth will diminish oil demand. But the recent acceleration of the financial crisis had caused investors to buy up commodities in a safer-haven play.
COMEX gold for December delivery fell $4.40 to $890 an ounce. Like oil, gold prices had also rallied during the biggest periods of unrest over the last few weeks
Other markets: In currency trading, the dollar gained against the euro and fell against the yen.
Gas prices fell for the 13th day in a row, according to a nationwide survey of credit card activity.
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