NEW YORK — Wall Street snapped back Tuesday after its biggest sell-off in years amid growing expectations that lawmakers will salvage a $700 billion rescue plan for the financial sector.
But the seized-up credit markets where businesses turn to raise money showed no sign of relief.
One day after the biggest point drop in its history, the Dow Jones industrial average rose 485 points, or more than 4.5 percent — the latest in a string of extraordinarily volatile days in the stock market. It was the third-biggest point gain in the Dow’s history and the biggest percentage climb in the Dow in six years.
The recovery in stocks wasn’t unexpected as carnage on Wall Street often attracts bargain-hunters, though questions remain about how investors will proceed. Without a bailout plan in place to absorb soured mortgage debt and other bad loans from battered banks, investors are left wondering what might restore confidence in lending.
Major stock indexes were almost a sideshow during the session, with the credit markets as the main event. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.
The Dow rose 485.21, or 4.68 percent, to 10,850.66 after falling nearly 7 percent Monday to its lowest close in nearly three years.
Broader stock indicators also bounced higher.
The Standard & Poor’s 500 index recovered 58.35, or 5.27 percent, to 1,164.74, and the Nasdaq composite index rose 98.60, or 4.97 percent, to 2,082.33.
Traders on the floor of the New York Stock Exchange, still stunned from Monday’s 778-point rout in the Dow, warned that the government needs to approve a plan that will sweep away the fears that have hobbled the credit markets. While U.S. political leaders have vowed to revisit the issue and the Senate plans a vote today, the House isn’t slated to meet again until Thursday.
“If it doesn’t pass, then look out below,” said Jason Weisberg, an NYSE trader for Seaport Securities. “It could get ugly.”
Though the blue-chip index rose nearly 500 points by late afternoon, the main worry for traders is that a lack of a plan will make it nearly impossible for some companies to fund basic operations such as making payroll.
Participants in the credit market buy and sell debt that companies use to finance operations.
“I’m not getting the sense that investors are going to be jumping in with both feet until there is some kind of resolution on the plan,” said James Maguire, an NYSE floor trader with Christopher J. Forbes.
“If there’s a ‘no’ vote, we’re going to see a lower overall drift in stocks,” he said. “It will be a slow bleed.”
