Stocks rose for a second straight session as financials rallied and oil broke below the key $125-a-barrel mark.
The Dow Jones Industrial Average rose nearly 30 points, or 0.3 percent, to close at 11632.38. The S&P 500 index gained 0.4 percent and the Nasdaq advanced 1 percent.
"Oil is definitely encouraging, it may be a bullish catalyst, but we are also actually removing what I like to call the catastrophe premium," Jessica Hoversen, fixed income derivatives from MF Global, told CNBC.
fell below $125 a barrel, settling at $124.44 a barrel. An earlier report showed a 1.6-million-barrel drop in crude inventories. Oil is down about 13 percent since its all-time high above $147 hit earlier this month.
For most of the day, stocks see-sawed with oil prices. Expectations that the House would pass the Fannie Mae-Freddie Mac rescue planboosted financials. Some analysts noted that the new SEC rules on shorting certain types of financial firms have prompted some hedge funds to unwind their long-oil, short-financials trades.
Financials rose 1.9 percent, buoyed by expectations that the House will approve a plan to rescue troubled mortgage-finance giants Fannie Mae and Freddie Mac .
Shares of both Fannie and Freddie rose more than 11 percent.
Brokerage stocks struggled to remain above water but regional bank stocks continued their rally amid relief that this quarter's earnings are behind us and as traders bet that the beaten-up sector may have hit bottom.
The strongest part of the rally in financials over the past four or five sessions has been short covering, Art Cashin, director of floor operations at UBS, said on CNBC. Just look at the prior session, Cashin said, when all three major indexes closed up about 1.2 percent. The fact that they were all about the same indicates technical trading.