Futures pointed to a reflex rally on Tuesday amid hope that Congress will regroup and find a way to approve a $700 billion bailout plan for banks which it rejected on Monday.
The major indexes indicated a gain of about 2 percent across the board at the opening.
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 bill and the record 777-point drop that 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."
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."
Fear hit news highs on the market Monday, with the Chicago Board Options Exchange's Volatility Index hit a record high of 46.72, indicating that options traders expect wild swings in stock prices.
Violent market reaction increased pressure on Washington to approve compromise bailout legislation and fuelled expectations that the Fed would cut interest rates on or before its next meeting, which is scheduled for Oct. 29.
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.
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.
Citigroup, JPMorgan Chase and Bank of America each clawed back some ground after tumbling 12 percent, 15 percent and 17 percent respectively Monday.
Elsewhere, 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,
On the economic front, the S&P/Case Shiller home price index for July is released at 9 a.m New York time, Chicago purchasing managers data is released at 9:45 a.m. and consumer confidence is reported at 10 a.m.