A late rally pushed stocks sharply higher on Wednesday as takeover news and speculation of a Fed interest rate cut overshadowed credit jitters.
"We think that liquidity is returning to the market after being problematic," said Kevin Cronin, head of investments at Putnam. "We think the Fed's actions last week righted the ship, and we think things are going to get better going forward."
Citigroup said its banking unit, Citibank, borrowed $500 million from the Fed discount window to fund clients. The other three largest U.S. banks also took the unusual step of borrowing directly from the Fed with Bank of America, JPMorgan Chase and Wachovia each borrowing $500 million.
Lehman Brothers announced it was closing its BNC Mortgage unit, a move that will affect the division's 1,200 employees.
Mining company Rio Tinto said it has funds necessary for its $38.1 billion takeover of Canadian aluminum producer Alcan , despite recent market turbulence.
Shares of MGM Mirage rose sharply on news Dubai World, the investment holding firm of the Dubai government, will acquire a 9.5% stake in the casino operator and a 50% interest in MGM's CityCenter development project for $5 billion.