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Stocks Roar Back but Still a Dismal Quarter

Stocks came roaring back Tuesday, clawing back more than half of the gains they lost in the prior session, amid the belief that Congress will get something done on the bailout bill this week.

Monday's selloff was "more investors selling Washington, D.C., than selling Wall Street," said John Schloegel, VP of investment strategies at CCAM.

Still, we've never been in a position like this before he said: "We could be up 1000 points tomorrow or down 1000," he said. It's anybody's guess. "An investor should just be hedged; we are 50 percent invested in cash."

After Monday's bloodbath, the New York Stock Exchange set circuit-breaker trigger levels for the Dow in the fourth quarter. A 1100-point drop before 2 p.m. will halt trading for one hour, a 2200-point drop before 1 p.m. will stop trading for two hours, and a 3350-point drop will shut down trading for the rest of the day, regardless of what time it occurs.

On Tuesday, the Dow Jones Industrial Average rose 485.21, or 4.7 percent, to close at 10850.66, erasing much of the record 777.68-point loss it suffered Monday. Still, for the month, the Dow ended down 6 percent. The blue-chip index shed 4.4 percent for the third quarter, the fourth straight quarter of decline, and its longest quarterly losing streak since 1978.

Volume was light Tuesday due to Rosh Hashanah, the Jewish new year holiday, at 1.6 million shares on the New York Stock Exchange.

The S&P 500 gained 5.3 percent, marking its best day in six years. However, September was its worth month in six years, with the index down 9.2 percent for the month and 9 percent for the quarter.

The Nasdaq advanced 5 percent, though techs have taken a beating this month, with the index down more than 12 percent since the summer ended. The tech-heavy index shed 9.2 percent for the quarter.

The CBOE Volatility Index confirmed that the fear has subsided somewhat today as the VIX dropped below 40 after hitting a record 46.72in the prior session. This is perhaps the best indication of how the month has gone: The VIX is up a whopping 91 percent for the month and 65 percent for the quarter.

Pretty much every sector took a beating in September, though consumer staples and health care were the best performers, followed by financials, and materials and energy were the worst.

Bank of America , JPMorgan Chase and Citigroup were the Dow's best performers in the month and quarter.

Alcoa , Caterpillar and General Motors were the biggest drags on the down in the month and quarter.

Crude oil has fallen sharply since its summer peak around $147 a barrel, finishing the quarter at $100.64 a barrel.

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," Art 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.

>> Poll: Should the Fed Cut Rates? Vote Now.

Meanwhile, the FDIC is expected to seek authority to increase the deposit-insurance levelbeyond the current $100,000 limit, Rep. Barney Frank, Chairman of the House Financial Services Committee, said.

And, U.S. regulators are reviewing accounting guidelines that could clip some of the mortgage-related losses on banks' balance sheets.

Banks bounced back today after a painful selloff on Monday.

The big banks, including Citigroup, JPMorgan and Bank of America were the Dow's top three gainers, clawing back at least 14 percent after losing more than 12 percent a day earlier.

(Track the Dow winners and losers.)

The regional banks fared even better, with Sovereign Bancorp , which was the hardest hit Monday, rebounding about 70 percent. Sovereign, the largest remaining U.S. savings and loan now that JPMorgan has bought Washington Mutual, announced that it has hired a new CEO, Paul Perrault.

National City and Genworth were up 29 percent and 72 percent, respectively.

Shares of Reliant Energy tumbled 27 percent after the power-plant operator said it had to raise $1 billion to replace a credit facility with Merrill Lynch. The company also slashed its forecast, citing damage from Hurricane Ike and hedging losses.

(This CEO just says "No" to the no-short list. Click on the video at left.)

Technology stocks, which took a beating Monday amid worries that a global slowdown would clamp down on tech spending, also rebounded.

Apple, which logged its worst day since 2002 on Monday after several downgrades, reclaimed about 8 percent of the 18 percent it lost in that session.

Rival Research In Motion jumped 11 percent.

Among other tech names, Google skidded 10 percent, while and Amazon gained 15 percent.

Microsoft rose 7 percent after CEO Steve Ballmer said Microsoft will take a hit from the global financial crisis as both consumer and business spending slow.

"We have a lot of business with the corporate sector as well as with the consumer sector and whatever happens economically will certainly effect itself on Microsoft," he told Reuters. "I think one has to anticipate that no company is immune to these issues," he said.

Pepsi Bottling Group reported a lower quarterly profit of $1.06 a share, ahead of expectations by 2 cents. The largest bottler of PepsiCo beverages modestly raised its full-year forecast.

In economic news, the S&P/Case Shiller home-price index plungeda record 16.3 percent in July from a year earlier, though that was roughly in-line with what economists had expected. The Chicago purchasing-managers index slippedin September, though not as much as expected. A gauge of consumer confidence roseto 59.8 in September, the Conference Board reported, from 58.5 in August.

THIS WEEK:

TUESDAY: Rosh Hashanah (Jewish new year) holiday
WEDNESDAY: Auto sales; weekly mortgage applications; ADP employment report; ISM manufacturing index; construction spending; weekly crude inventories; Eid (Muslim) holiday
THURSDAY: Short-selling ban expires at 11:59 pm ET; ECB announcement; jobless claims; factory orders; natural-gas inventories; Fed's Bullard speaks; earnings from Constellation Brands
FRIDAY: August jobs report; ISM services index; earnings from Family Dollar

Send comments to cindy.perman@nbcuni.com.

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