Stocks rebounded Tuesday amid hope that Congress will regroup and pass a bailout bill this week and amid afternoon buzz that a federal bank regulator will seek to raise the deposit-insurance limit.
The Dow Jones Industrial Average was up about 250 points of most of the day but got another 100 points out of the deal after Rep. Barney Frank, Chairman of the House Financial Services Committee, said FDIC chairwoman Sheila Bair will seek authority to increase the deposit-insurance level beyond the current $100,000 limit.
The amount the Dow clawed back was about half of the record 777.68 it lost in Monday's bloodbath. The S&P 500 and Nasdaq also reclaimed about half of the 9 percent they lost on Monday. (See a list of the top drops in all three major indexes.)
The CBOE Volatility Index confirmed that the fear has subsided somewhat today as the VIX dropped back to around 40 after hitting a record 46.72in the prior session.
President Bush spoke briefly before the market opened, offering words of encouragement to a market still reeling from the House's rejection of the bailout billand the record 777-point dropthat resulted in the Dow.
The legislative process isn't over, Bush said in a live televised statement. "Congress must act," he said. "Our economy is depending on decisive action from the government. The sooner we address the problem, the sooner we can get back on the path of growth and job creation."
"There's an overarching belief that at some point this week, whether it's Wednesday or Thursday, we'll get something passed by the House," Arthur Hogan, chief market analyst at Jefferies, told Reuters.
Art Cashin, director of floor operations for UBS, warned that a failure to pass legislation would have dire effects for millions of Americans.
“All our concern about bailing out Wall Street — it’s really to try to free up Main Street,” Cashin said. “So the guy with the plumbing-supply business who gets a contract can go to the bank and get some of the money he needs overnight.” If credit markets freeze up, Cashin said, “we could see some big names fail — and they won’t be financials."
Both Democrat and Republican Senate leaders said Congress will take action this week.
“This financial crisis is gonna be dealt with by Congress and it’s gonna be dealt with by Congress this week,” said Senate Minority Leader Mitch McConnell, a Republican from Kentucky.
Some experts said central banks may now be forced to cut interest rates in a coordinated move because their massive fund injections have done little to ease strains that are threatening to become a bigger systemic breakdown that could endanger the global economy.
Monday's violent market reaction fueled expectations that the Fed would cut interest rates on or before its next meeting, which is scheduled for Oct. 29.
Signs that more and more banks are now succumbing to the strains stemming from the U.S. housing slump probably will fuel more volatility, experts said.
In Europe, Belgian-French financial services group Dexia will receive a capital boost of 6.4 billion euros ($9.18 billion) from Belgium, France, Luxembourg and key shareholders, another bank on the continent to need help in the crisis. The bank's CEO and chairman resigned Tuesday morning.
Ireland moved to guarantee all bank deposits for two years in order to avoid a confidence crisis in its banks.
Financials bounced back.
The big banks, including Citigroup, JPMorgan Chase and Bank of America were the Dow's top three gainers, clawing back at least 7 percent after losing more than 12 percent a day earlier.
The regional banks fared even better, with Sovereign Bancorp , which was the hardest hit Monday, rebounding about 60 percent.
National City and Genworth were up more than 20 percent.