NEW YORK A late afternoon surge capped another wild day Tuesday on Wall Street and prevented the S&P 500 stock index from entering a bear market. Stocks jumped on reports that European officials were working to prop up the regions struggling banks.
The Dow Jones industrial average was down nearly 200 points with 40 minutes of trading left. It closed up 153.
Indexes opened sharply lower as traders worried that the government of Greece could be closer to defaulting on its debt. They pared their losses at midday after Federal Reserve Chairman Ben Bernanke told a congressional panel that the central bank could take more steps to stimulate the economy, then slumped again in the afternoon.
At 3:25 p.m., the market began rising quickly after news outlets reported that European financial ministers were working on a way to coordinate their efforts to support European banks, as they did during the financial crisis in 2008. Worries that European and perhaps U.S. banks could get hammered by a Greek default have been a major concern among investors.
Right now, fear is trumping fundamentals, and people are buying on nothing more than rumors, said Mark Lamkin, head of Lamkin Wealth Management. Its not business risk that the market is concerned with, its systemic risk. If there truly is a solution to Europes problems, then well set the stage for a nice rally.
The Dow closed with a gain of 153.41, or 1.4 percent, to 10,808.71.
The Standard and Poors 500 rose 24.72, or 2.2 percent, to 1,123.95. It had been as low as 1,074, which was 21 percent below its April 29 peak of 1,363. Had the index closed with a decline that size, it would have met the typical definition of a bear market.
The technology-focused Nasdaq composite rose 68.99 points, or 3 percent, to 2,404.82.
Smaller stocks rose much more than the overall market. The Russell 2000 index of small companies gained 39.15, or 6.4 percent, to 648.64.
Analysts said the bounce in small companies likely resulted from investors picking up stocks they considered cheap after the index fell sharply the day before. The Russell index plunged 5.4 percent Monday.
Apple Inc. lost 0.5 percent to $372.50. It had been down 5 percent before the late rally after the company unveiled a faster iPhone that fell short of the bigger upgrade that some analysts had predicted.
Two stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.9 billion shares.