Stocks closed lower after swinging wildly all day as a coordinated global rate cut failed to reassure investors.
The Dow Jones Industrial Average jumped between triple-digit gains and equal-sized losses before ending down 200 points as the markets continued to worry about the growing credit crisis.
The Vix hit an intraday high as the CBOE panic meter headed for 60, double what would normally indicate high volatility--and perhaps hinting the market was trying to form a bottom.
"The action we're seeing is very typical of what happens when you capitulate, when you're working your way through a bottom," Art Hogan, managing director at Jefferies, said on CNBC. "That doesn't mean we need to recover very quickly."
Uncertainty pervaded the trading day, begun early when when the rate-cut news broke.
The Federal Reserve, joined by others around the world, again tried throwing the credit community a life raft, when it slashed its primary lending rate by half a percentage point to 1.50 percent. The European Central Bank cut by the same amount to 3.75 percent.
But the impact of the moves was modest as various benchmarks showed continued tightening in bank monetary policy.
The Ted Spread, which measures the gap between the London Interbank Offer Rate, or Libor, and the 3-month Treasury bill widened past 4.0 percentage points. Overnight Libor pushed past 5.3 percent, while 3-month Libor hit 4.52 percent.
"I think the consensus here is this won't work," Jim Paulson, of Wells Capital Management, said on CNBC. "It just gives you a sense that they keep running out of bullets."
"If we have to use a bullet a day just to keep from going down--I think we've got to get to next week and we've got to get that $700 billion (government rescue) package, start buying something, and that has the essence of maybe turning this around."
Pockets of strength pushed pivotal bank stocks through a wild elevator ride.
Bank of America, which preannounced disappointing earnings Monday, tumbled, even as Wells Fargo stemmed the tide.
Apart from the rate cut, Morgan Stanley returned to positive ground after Mitsubishi Financial Group said plans remain on track to infuse the investment bank with $9 billion in capital.
But MetLife dropped after the insurer said it would sell 75 million shares to raise capital, cut jobs and withdrew earnings guidance.
JPMorgan Chase and CNBC.com-parent General Electric led Dow gainers.
The intense flurry of activity led to hopes for a market bottom.
"Big disappointment this morning, because we could have an even better opportunity to buy if they had flushed them out down 500 or 600 points," Art Cashin, director of floor operations at UBS, said on CNBC.
Computer companies helped push the Nasdaq higher, with Apple and Hewlett-Packard posting nice gains.
Outside the US, the UK government announced a rescue package for banks under which at least 200 billion pounds ($350 billion) will be made available to financial institutions, plagued by bad debts and a crisis of confidence.
Britain said it would inject up to 50 billion pounds ($87.2 billion) of government money into the country's banks as part of a multibillion pound package to shore up the financial system.
Signs of Economic Woes
News from outside the banking sector did not contribute to lifting the investors' spirit.
Discount retailer Costcosaid net income was $397.8 million, or 90 cents per share, for the fiscal fourth quarter ended Aug 31, compared with $372.4 million, or 83 cents per share, a year earlier. But analysts, on average, had expected earnings of 93 cents per share, according to Reuters Estimates.
Aluminum producer Alcoaposted a lower-than-expected quarterly profit on Tuesday after the bell, citing softening demand in the key aerospace and auto sectors, and said it was halting major capital projects in the face of uncertain markets. The company was the main drag on the Dow.
Toyota Motor will likely post a 40 percent slide in annual profit, missing its profit estimates on weak sales in North America and slower growth in China, the Nikkei business daily reported.
Volvo, owned by Ford Motor, said on Wednesday it plans to shed 3,300 jobs in addition to cuts announced earlier this year due to a drastic decline in auto markets.
In retail, JCPenney shares slid after the company said its same-store sales tumbled more than 10 percent and would face tough times going ahead.
But Wal-Mart , which said its sales at stores open at least a year gained 2.4 percent, saw shares rise.