NEW YORK — Wall Street ended another tumultuous session with a sizable gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady. Speculation that troubled insurer American International Group Inc. might come up with a much-needed cash injection made room for many financial stocks to rally.
A day after the Dow Jones industrial average fell more than 500 points amid surging fears about the financial sector, investors alternately despaired and grew optimistic about the prospects for AIG. As one of the 30 stocks that make up the Dow, the company’s fluctuations tugged at the blue-chip index throughout the session.
The Dow at turns rose and fell as much as 175 points before finishing up 141.
Meanwhile, the Fed’s decision, while not popular with investors clamoring for a rate cut to boost market sentiment, appeared to sidestep the second-guessing about the health of the economy that can follow a cut in difficult times.
The Fed, acknowledging strains upon the financial markets, reminded investors that it has taken steps to add more cash to the banking system. Those moves and earlier rate cuts should foster moderate economic growth over time, the central bank said in the statement accompanying its rate decision.
“This was the right thing to do,” said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. “I just don’t think the Fed should be responding to the financial-market crisis at this stage.”
Worries about the well-being of AIG intensified this week after several ratings agencies downgraded the company’s credit, in turn forcing the insurer to come up with more capital. Investors fear that a failure by the world’s largest insurer would touch off a wave of financial turmoil.
The Dow rose 141.51, or 1.30 percent, to 11,059.02, after falling about 100 points immediately after the Fed announcement.
