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One day after the biggest point drop in its history, the Dow
Jones industrial average rose 485 points, or more than 4½ percent -
the latest in a string of extraordinarily volatile days in the
stock market. It was third biggest point gain in the Dow's history
and the biggest percentage climb in the Dow in six years.


      In Washington, congressional leaders scrambled to come up with
changes to the $700 billion bailout package, which would buy bad
debt off the books of staggering banks, in hopes of passing some
version of it later this week.


      The idea drawing the biggest support: Raise the amount of bank
deposits insured by the federal government, now $100,000 per
account, to $250,000, as a way to reassure Americans anxious about
their savings.


      Both leading presidential candidates endorsed the idea - and so
did the agency that runs the program. Federal Deposit Insurance
Corp. chairman Sheila Bair asked Congress for temporary authority
to raise the limit by an unspecified amount.


      Still, it remained unclear exactly when or how Congress would
act, and Wall Street was watching nervously.


      "If it doesn't pass, then look out below," said Jason
Weisberg, a New York Stock Exchange trader for Seaport Securities.
"It could get ugly."


      The Dow recovered about two-thirds of its record 778-point drop
from Monday, but the action in stocks was almost a sideshow against
the growing alarm about the credit market, relied on by companies
large and small to pay for everyday expenses, from basic supplies
to employee salaries.


      The benchmark rate that banks charge to lend each other money
rose sharply, making it more expensive for everyone to borrow.
Credit card debt and many mortgages are tied to the rate, too, so
everyday Americans will feel the pinch.


      "There's too much fear in the market," said Kim Rupert,
managing director of global fixed income analysis at Action
Economics. "Everybody is hoarding their cash."


      President Bush, applying more pressure before a likely vote in
Congress on Thursday, emerged from the White House early Tuesday to
say the damage to the economy would be "painful and lasting" if
Congress failed to act.


      At the close, the Dow was up 485.21, or 4.68 percent, to
10,850.66. It had fallen almost 7 percent on Monday to its lowest
close in nearly three years - though the drop was far shy of the
20-plus-percent drops of the 1987 stock market crash and the Great
Depression.


      Broader stock indicators also bounced higher. The Standard &
Poor's 500 index rose more than 5 percent for the day, and the
Nasdaq composite index was up almost 5 percent.


      It was another day of remarkable volatility on Wall Street.
Since the night of Sept. 14, when word spread that investment house
Lehman Brothers would be forced into bankruptcy, all but one of the
12 trading days has ended with the Dow up or down by more than 100
points.


      For the month of September, 15 of the 21 trading days saw
triple-digit swings in the Dow. The blue chip index ended the month
down about 695 points.


      And as the third quarter came to a close, no one appeared to
have a definitive answer to the question plaguing the American
financial system - how to unlock the crucial credit market.


      The benchmark London Interbank Offered Rate for three-month
dollar loans rose to 4.05 percent on Tuesday from 3.88 percent a
day before. For loans in euros, the rate rose to 5.27 percent, from
5.22 percent.


      The translation: It's becoming even harder to borrow money.


      In one example, when AT&T tried to raise short-term cash last
week by selling corporate debt known as commercial paper, it
couldn't find anyone willing to lend longer than just overnight,
CEO Randall Stephenson said.


      On Main Street, people trying to buy, say, washing machines have
had a tougher time securing financing. Small business have
struggled to buy new supplies, and some haven't made their
payrolls.


      "It feeds into itself," said John Castellani, president of
Business Roundtable, an association of CEOs of U.S. companies that
employ more than 10 million people. "It just continues to spiral
down."


      For decades, large companies have borrowed money by selling
short- and long-term bonds in the credit markets. They took loans
from outside investors and promised to pay it back with interest
after a certain amount of time.


      But the underlying trust in those loans has been slammed by the
downfall of big names like Lehman Brothers and insurer American
International Group Inc. Banks, funds and other investors don't
really know who is invested in what.


      On Tuesday, the yield on the three-month Treasury bill rose to
0.89 percent from 0.14 percent late Monday. The yield had fallen as
investors clamored for the relative safety of government debt.


      The yield on the benchmark 10-year Treasury note, which moves
opposite its price, rose to 3.83 percent from 3.58 percent. The
dollar rose against other major currencies and gold prices moved
higher.


      The bailout package failed in the House on Monday in a surprise
vote. On Tuesday, Republican House aides said the proposal to boost
the Federal Deposit Insurance Corp. limit might attract some
conservatives who want to help small business owners and avert runs
on banks by customers fearful of losing their savings.


      Another possible change to the bill would modify accounting
rules that require banks to adjust the value of their assets to
reflect current market prices, even if they plan to hold the assets
for years. Some House Republicans say current rules forced banks to
report huge paper losses on mortgage-backed securities, which might
have been avoided.


      The congressional package was also center-stage on the campaign
trail.


      Republican Sen. John McCain said "Americans are frightened
right now" and added that political leaders must give them an
immediate solution and a longer-term approach to the problem. He
suggested calling the package a "rescue" rather than a
"bailout."


      Democratic Sen. Barack Obama issued a statement saying that
significantly increasing federal deposit insurance would help small
businesses and make the U.S. banking system more secure as well as
restore public confidence.


      On Wall Street, many traders likely will proceed cautiously
while they gauge prospects for resurrecting the bailout effort,
which was backed by leaders of both parties.


      "I'm not getting the sense that investors are going to be
jumping in with both feet until there is some kind of resolution on
the plan," said James Maguire, an NYSE floor trader with
Christopher J. Forbes. "If there's a no vote, we're going to see a
lower overall drift in stocks. It will be a slow bleed."

Gallery

Senate schedules vote on bailout bill for Wednesday

Fingerpointing continues on bailout failure

Business and Economic News

Wall Street roared back Tuesday on a bet that
Congress would find a way to save its massive financial rescue
package, but the credit market - the day-to-day borrowing that
keeps the gears of the economy turning - remained rusted over.

Stock market storms back, but credit still tight

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