Market Bounces Off Lows as Banks Boom

Banks served as an unlikely ally to help Wall Street fought its way back from a precipitous opening drop.

Volatility promised to cause violent swings as the market battled to break a seven-day losing streak. The Dow briefly dipped below 8,000 as traders dumped some of Wall Street's most venerable names in a rush from risk, but about one-third of the bluechip index went positive after the first half-hour of trade.

"The market right now is deeply, desperately trying to find value, and until it finds that area we're not going to stabilize or contract or try to find that horizontal-type trading," Ben Lichtenstein, president of Traders Audio, told CNBC. "We're in a vertical market right now."

But most of the big banking stocks turned positive in early trade, with Wachovia and Bank of America leading the charge.

Wells Fargo emerged trimuphant in its scrum against Citigroup to buy Wachovia. Wells Fargo will pay about $11.38 billion for Wachovia after Citi backed away.

Meanwhile, Dow component General Electric's earnings report were another bright spot in early trading.

CNBC.com-parent GE reported a third-quarter profit of 45 cents a share, in line with market expectations, and also reported a profit for its financial services unit.

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On the downside, battered insurer American International Group and retailer Home Depot were among the big losers.

Monetary easing and massive U.S. bank borrowing from the Federal Reserve did little to calm the panic in credit markets at the epicenter of the global financial crisis. Moody's warned it might cut the long-term debt ratings of Morgan Stanley and Goldman Sachs , which would increase their cost of borrowing. The government could consider nationalizing the two investment banks if things get worse, as they are too big to be allowed to fail, Hugh Hendry, Partner and CIO at Eclectica, told CNBC.

Analysts debated the role the government needs to play to guide the market out of the worst Dow points selloff in history, with those in favor of further involvement wanting more done to heal the credit markets.

"You're not going to fix the stock markets until you fix the credit markets," investor Wilbur Ross said on CNBC. "So I hope that the government comes out with some broad-based things, be it some combination of insuring interbank lending and/or putting a limit on insured deposits all the way up."

In further banking tumult, British bank Barclays fell after it said it would considering dipping into the UK's government recapitalization facility.

Meanwhile, Macy's shares fell after the retail chain lowered its outlook over fears about weakening consumers.

Government 'Freak Show' Inadequate

Congress, which last week passed a $700 billion bank rescue plan, hasn't been focusing on the proper strategies, Ross added.

"I think bold, conclusive action is what's needed on the part of the government," he said. "I think a lot of why we get where we did was that freak show in the Congress that went a couple of weeks ago where instead of wondering is $700 billion the right number, they're wondering whether the CEOs should be paid this, that or the other thing." See comments from Ross in the video.

Energy prices again slid, with crude falling more than $3 to below $83 a barrel. There was speculation that economic deflation could send crude prices plunging.

"I think we're near a low near-term but longer term I think it could get a lot lower--$50, $40, $30, I'm not even ruling out $20, because this market always moves further and faster than any of us expect it to," Peter Beutel, of Cameron Hanover, said on CNBC. "If it gets there it will be a disaster because we'll put so many exploration and drilling companies out of business."

Asian stocks tanked, with Japan closing down nearly 10 percent, Hong Kong down 7 percent and Australia down 8 percent.

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