Dow Jumps 485 Points

U.S. stocks recoup some of Monday's losses amid optimism that lawmakers will revive a rescue plan for the financial system. But credit market troubles continued

by Will Andrews and Karyn McCormack

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Hope returned to Wall Street Tuesday as stocks recouped some of the deep losses from Monday's vicious market sell-off that was triggered by the surprising defeat of Bush's $700 billion bailout plan. Investors bet that Congress will heed President George Bush's call to pass the financial rescue plan quickly.

Efforts to help restore confidence in the banking system helped send stocks up from high levels Tuesday afternoon. Rep. Barney Frank, chairman of the House Financial Services Committee, has told lawmakers that the FDIC's Sheila Bair will seek authority to increase the deposit insurance limit from its current $100,000, according to a source familiar with the chairman. Presidential nominees Barack Obama and John McCain both proposed an increase in federal deposit insurance to $250,000 from $100,000 as a way to broaden support for the $700 billion financial bailout bill rejected on Monday by the House of Representatives.

The FDIC insures up to $100,000 per deposit account and up to $250,000 per retirement account at insured banks. The agency's insurance fund stood at about $45.2 billion at the end of the second quarter and has taken a hit from bank failures in recent months.

There were also reports saying that the Securities and Exchange Commission (SEC) was working with the FASB on "fair value" accounting rules that could delay implementation of the mark-to-market provision.

Short covering helped propel gains in U.S. equity indexes Tuesday. The blue-chip Dow Jones industrial average rose 485.21 points, or 4.68%, to 10,850.66. The broader S&P 500 index jumped 58.35 points, or 5.27%, to 1,164.74. The tech-heavy Nasdaq composite index gained 98.60 points, or 4.97%, to 2,082.33.

On the New York Stock Exchange, 26 stocks rose in price for every 6 that fell. The ratio on the Nasdaq was 18-10 positive.

Battered financials, energy, and consumer staples stocks were higher, reports S&P MarketScope.

Bonds, which soared Monday after the House defeated the financial rescue plan, were plunging amid speculation that a rescue package for the financial sector will ultimately be passed this week. The 10-year note dropped 66/32 to 101-16/32 for a yield of 3.82%, while the 30-year bond plunged 100/32 to 103-13/32 for a yield of 4.23%.

Crude oil futures rose $4.55 to $100.92 a barrel in a rebound from Monday's downturn amid hopes the financial plan would be revived this week and prevent the economy from slipping into a severe recession that would trim demand. Meanwhile, the dollar index was soaring as the euro slumped and gold fell.

Around the world, many equity markets regained their footing after Monday's bloodbath. In London, the FTSE 100 index was up 1.74% to 4,902.45. In Paris, the CAC 40 index rose 1.99% to 4,032.10. And Germany's DAX index edged up 0.41% to 5,831.02.

Asian markets were mixed. Japan's Nikkei 225 index fell 4.12% to 11,259.86. In Hong Kong, the Hang Seng index gained 0.76% to 18,016.21. Shanghai's markets remained closed for a holiday.

Some companies were assessing the damage on Tuesday. Reuters reported that Microsoft (MSFT) CEO Steve Ballmer said the global financial crisis will sap consumer and business spending, affecting all companies, including his own. "We have a lot of business with the corporate sector as well as with the consumer sector and whatever happens economically will certainly effect itself on Microsoft," Ballmer told Reuters. "When consumers feel the economic pinch, house prices come down. That can't be good." Ballmer said he believed Congress would soon help stabilize the situation after rejecting a $700 billion bank bailout plan on Monday.