A late afternoon surge capped another wild day on Wall Street Tuesday 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 region's 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. "It's not business risk that the market is concerned with, it's systemic risk. If there truly is a solution to Europe's problems, then we'll 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 Poor's 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 was 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.
Concerns about Europe's debt crisis have been at the root of much of the market's recent volatility. Investors are worried that Greece's government will be unable to make payments on its loans, triggering a default. That would lead to sharp losses for banks and other institutions that hold Greek debt, and possibly cause banks to stop lending to each other.
If that got out of hand, global credit markets could freeze up as they did in October 2008 after the investment bank Lehman Brothers failed. On Tuesday, European finance ministers suggested that they may require holders of Greek debt to take larger losses in the future as a condition of more financial support for the struggling country. That would hurt banks that hold the debt.
"Europe is the center point of all of this," said Paul Zemsky, head of asset allocation at ING Investment Management.
In testimony before Congress, Bernanke said the central bank is ready to take more steps to stimulate the economy. That could mean more bond purchases aimed at lowering interest rates and encouraging lending. Bernanke said the economy is weaker than the central bank expected and poor job growth continues to undercut consumer confidence. .
The yield on the 10-year Treasury note rose to 1.82 percent from 1.78 percent late Monday. It briefly went as low as 1.72 percent around 10 a.m., near its record low of 1.71 percent reached Sept. 22. Bond yields fall when their prices rise.
Analysts said Europe's debt problems overshadowed signs that the U.S. economy continues to grow, although slowly. Those signs include reports Monday that auto sales jumped 10 percent in September and one measure of U.S. manufacturing increased.
"Collectively, the data here in the U.S. hasn't been that bad, but investors are looking at Europe and saying, `I don't care what the U.S. fundamentals are when we've got much bigger problems overseas that may eventually wash onto our shores,'" said Phil Orlando, chief stock strategist at Federated Investors.
The S&P index has fallen every month since April because of two concerns: the strength of the U.S. economy and the debt crisis in Europe.
In corporate news, Bank of America Corp. jumped 4.2 percent to $5.76. It was down 5 percent to $5.24 before the late market surge as investors continued to be troubled by its exposure to soured mortgages securities and a several-day outage of its website. The company's stock lost 9 percent Monday to $5.53, a level not seen since 2009.
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.