Stocks surged in the final hour, propelling the Dow to a triple-digit point gain, after a sharp drop in oil prices and an encouraging analyst note on financials.
The Dow industrials gained more than 135 points, or 1.2 percent, to close at 11602.50. The S&P 500 gained 1.4 percent.
The Nasdaq advanced 1.1 percent but investors still punished select techs, including Apple and Texas instruments after the firms dispatched disappointing results.
All three indexes finished above the bear mark, defined as 20 percent below their recent highs.
Bank of America was the biggest gainer on the Dow, jumping 13 percent, after the bank on Monday became the fourth in a string of banks to surpass earnings forecasts.
Citigroup, Wells Fargo and JPMorgan are the other three, who topped expectations when they reported last week.
That had kept the market mellow for most of the day.
"Once everyone saw the worst isn't happening this very second ... it took a lot of heat off this market," said Michael Cohn, chief investment strategist at Atlantis Asset Management.
Then, an afternoon note from Mike Mayo, an analyst at Deutsche Bank triggered a rally in the sector that sent the Dow up like a geyser -- more than 100 points -- in the final hour of trading.
"We now would reduce the degree of our 'underweighting' on the group," May wrote.
He cited three reasons: 1) There have been no new capital issuances this quarter, margins have improved more than expected and problems haven't spread as much as expected.
Wachovia had threatened to ruin the party, reporting an $8.86 billion second-quarter lossthat was even worse than analyst estimates, and cutting its dividend for the second time this year. The stock initially dropped more than 10 percent but then rebounded after the bank said it doesn't plan any stock offerings to raise fresh capital. Shares finished up 27 percent. SunTrust Bank beat expectations, sending its shares up more than 16 percent.
Also giving the market a boost was oil's retreat to a six-week low.
After losing more than $16 a barrel last week -- its largest dollar-decline ever -- oil lost more than $3 a barrelTuesday, settling at $127.95 a barrel as concerns subsided about a tropical storm heading toward the Gulf of Mexico.
Oil's slide gave airline stocks a lift. United parent UAL rocketed 69 percent, while Continental and American parent AMR jumped 43 percent, and 37 percent, respectively.
Coca-Cola and Wal-Mart were among the biggest gainers on the Dow amid hopes that oil's retreat will bring crunched consumers some relief.
Oil stocks have taken a beating through oil's retreat, prompting some strategists to say that the market's love affair with commodities is over.
But Cohn says he's actually looking for a buying opportunity to get back into oil and basic materials. "There is further to go on these stocks on the downside but they've had a good, violent correction here. They're starting to get to compelling levels again."
"These super bull-market corrections are short and violent," Cohn said, pointing out that some of the biggest gainers in last week's rally were stocks that were the most heavily shorted.
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Shares of Apple fell 2.6 percent after the computer and iPod maker exceeded the consensus earnings target but warned that current-quarter earnings would miss analysts' expectations.
Shares of Texas Instruments plunged 15 percent after the chip maker missed profit forecasts due to weakness in sales of cell-phone chips.
American Express delivered a doozy after the closing bell Monday: The credit-card provider posted earnings well below forecasts and warned it will no longer be able to deliver its projected earnings growth of 4 to 6 percent this year because of the economy. What investors were even more nervous about was AmEx's revelation that even some wealthy consumers are having a hard time paying their bills. Its stock fell 7.1 percent.
Offering some cause for optimism, UPS , which is widely seen as a gauge of the economy for the breadth of businesses its packages reach, hit its earnings target despite the drag of fuel prices and said it expects "modestly better results"in the second half.
Shares of General Electric , parent of CNBC, gained 3 percent after the conglomerate struck an $8 billion joint venture with Abu Dhabi investment agency Mubadala Development Co.
Merck was once again the biggest decliner on the Dow, adding another 11-percent decline onto its more than 6-percent drop Tuesday. Traders pummeled the stock after the drug maker said a study showed Vytorin, its cholesterol-busting franchise with Schering-Plough, missed the mark on its primary and one of its secondary goals. Patients given Vytorin showed "no significant difference" than those given the placebo, Merck said.
Schering-Plough shares, meanwhile, rebounded 5 percent after sliding 12 percent in the prior session.
TUESDAY: Earnings from Yahoo and WaMu after the bell
WEDNESDAY: Weekly mortgage applications; weekly oil inventories; Earnings from AT&T, Boeing, ConocoPhillips, Pfizer, Philip Morris, Anheuser-Busch, Amazon and Pulte Home
THURSDAY: Weekly jobless claims; existing-home sales; earnings from Eli Lilly, MMM, Bristol-Myers, Dow Chemical and Xerox
FRIDAY:Durable-goods orders; consumer sentiment; new-home sales; earnings from Netflix
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