Bargain hunters helped push the Dow back above 11,000 briefly Tuesday. The Dow Jones industrial average rose 193 points, or 1.8 percent, to 11,003 in morning trading. On Monday, the Dow had its worst day since 2008. It plunged 634.76 points as fear coursed through global markets.
Investors worried about the first-ever downgrade to the U.S. credit rating, the slowing U.S. economy, debt problems in Europe and rising inflation in less-developed countries.
Hope that the Federal Reserve may announce more help for the economy in the afternoon also lifted stocks.
"Prior to the recent turmoil, we had thought the Fed would stand pat" at its policy meeting on Tuesday, said Paul Dales, senior U.S. economist with Capital Economics. "But now some action seems likely."
The central bank already has kept its key interest rate close to zero since 2008. The Fed in June ended a $600 billion program to buy Treasurys as a way to support the economy. Some Fed officials oppose another round of so-called quantitative easing because it could lead to higher inflation.
When the central bank issues its statement this afternoon, many economists don't expect to see another round of Treasury purchases. But Dales said the Fed could pledge to hold onto the Treasurys and other assets it has already bought for "an extended period." Such a move could soothe investors temporarily because it means the Fed won't flood the market with assets to sell. But such a move likely wouldn't be a significant boost to the economy.
The S&P 500 index rose 24, or 2.2 percent, to 1,144. The Nasdsaq composite index rose 59, or 2.5 percent, to 2,416.
"I think that stocks were cheap heading into the decline, and they just became cheaper," said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management, which has $228 billion in assets under management. "As a long-term investor, that's what I like to see."
While stocks were plummeting Monday afternoon, Jacobsen said he was buying technology stocks, particularly those with healthy balance sheets.
Gold set another record early Tuesday. It rose $21.50 per ounce to $1,737.70. Gold started the year at $1,421.40.
Investors piled into Treasurys on Monday, sending the yield on the 10-year note down to 2.34 percent. That matched its lowest level for the year, reached last week. Treasurys gave back some of those gains early Tuesday, "as they shake off some of the froth," RBS Securities analysts wrote in a report. The 10-year yield rose to 2.38 percent.
Economists believe there is a greater chance of a recession because the economy grew much more slowly in the first half of 2011 than previously thought. The U.S. economy grew at its slowest pace in the first half of 2011 since the recession ended in June 2009.
The manufacturing and services industries barely grew in July. The unemployment rate remains above 9 percent, despite 154,000 jobs added in the private sector in July.
Economies across the globe are also struggling.
Worries are growing that Spain or Italy could become the next European country to be unable to repay its debt. The European Central Bank bought billions of euros of Italian and Spanish bonds Monday in hopes of lowering borrowing costs for the countries.
Another concern: high inflation in less-developed countries, which have been the world's main economic engine through the recovery. China's inflation rose to a 37-month high in July. Hong Kong's Hang Seng index fell 5.7 percent on Tuesday.
The worries about the global economy falling into a second recession have pulled attention away from stronger corporate earnings.
Dish Network Corp.'s second-quarter net income rose 30 percent to $334.8 million on stronger revenue. Internet company AOL Inc. reported a smaller net loss for its second quarter, helped in part by stronger advertising revenue.
The housing market, though, remains weak. Homebuilder Beazer Homes USA Inc. said its loss widened last quarter after it closed on fewer homes.
Among the 441 companies in the S&P 500 index that have already reported their second-quarter earnings, profits are up 12 percent from a year ago.
This program aired on August 9, 2011. The audio for this program is not available.