Benchmark indexes crossed between gains and losses more than 25 times, and AIG pared most of a 74 percent decline, as investors weighed the fate of the largest U.S. insurer after credit-market losses forced Lehman Brothers Holdings Inc. into bankruptcy yesterday. Merrill Lynch & Co. led a 6.2 percent rally in the S&P 500 Financial Index after the measure of banks, brokerages and insurers posted its worst plunge since at least 1989 yesterday.
The Dow Jones Industrial Average added 141.51, or 1.3 percent, to 11,059.02 after twice erasing losses of more than 100 points. The S&P 500 increased 20.89 points, or 1.8 percent, to 1,213.59. More than two stocks rose for each that fell on the New York Stock Exchange.
The U.S. overcame declines that pushed down equity prices around the world, led by a 17 percent plunge in Russia's Micex index, as overnight lending rates doubled and concern grew AIG would collapse. Each of the 10 main industry groups in the S&P 500 advanced except for telephone companies and utilities.
The S&P 500 plunged as much as 2 percent in the morning. Stocks recovered as speculation grew that the Fed would cut interest rates, only to lose those gains after the central bank left borrowing costs unchanged.
The S&P 500 plunged 4.7 percent yesterday after Lehman filed for bankruptcy protection and Merrill was taken over by Bank of America Corp.The S&P 500 has fallen 17 percent this year and is poised to post its first yearly retreat since 2002 after global banks racked up more than $514 billion in credit losses and asset writedowns stemming from the worst U.S. housing slump since the Great Depression.
The S&P 500 Financials Index slumped as much as 3.7 percent in early trading as the overnight dollar rate soared 3.33 percentage points to 6.44 percent today, a record jump, the British Bankers' Association said. The rate was 2.19 percent a month ago and 2.15 percent last week.
Stocks also advanced as oil for October delivery lost $4.22 to $91.49 a barrel in New York on concern that turmoil on Wall Street may weaken the global economy and cut fuel demand.