The market, which has closed lower in four of the past five sessions, has been turbulent amid worries about how long a recession might be. That's driven many retail investors to the sidelines, while big institutional traders like hedge funds keep major stock indexes vacillating.
Stocks have been trading erratically for several weeks as investors try to gauge the direction of the economy — and there was more bad news on Tuesday. The government reported that wholesale prices plunged a record amount in October, a drop that could indicate a rising threat of deflation.
Many economists believe the economy has fallen into a recession that could be the worst downturn in more than two decades. However, the expectation is that easing inflation pressures will give the Federal Reserve room to cut interest rates further to combat the downturn.
Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke were grilled on Capital Hill about their management of a $700 billion financial bailout. Both are being asked to defend why they abandoned a plan to buy up toxic assets from the banks, and instead infuse billions into banks to pump up their capital and bolster lending to customers.
The market did get some positive momentum after Hewlett-Packard Co. unexpectedly announced that fourth-quarter and 2009 earnings will come in above Wall Street projections. The results signal HP, the world's largest-maker of personal computers, is weathering the economic crisis that has siphoned off sales at other technology companies.
In midmorning trading, the Dow Jones industrial average rose 135.80, or 1.64 percent, to 8,409.38.
Broader indexes were also higher The Standard & Poor's 500 index rose 12.08, or 1.42 percent, to 862.83, while the Nasdaq composite index added 10.57, or 0.71 percent, to 1,492.62.
Declining and advancing issues were about even in trading on the New York Stock Exchange, where volume came to a light 124 million shares. The Russell 2000 index of smaller companies fell 0.28, or 0.06 percent, to 451.02.
On Monday, Wall Street finished sharply lower in a volatile session, with the Dow giving up 223 points. Much of that loss came within the last hour of trading, a pattern that has only escalated in the past few weeks.
The uncertainty on Wall Street has kept Treasury bonds in high demand. The yield on the three-month T-bill, considered one of the safest assets around, edged up just slightly to 0.12 percent from 0.10 percent late Monday. Longer-term Treasurys also moved higher, with the yield on the benchmark 10-year note falling to 3.61 percent from 3.66 percent.
Yields that low suggest that investors are willing to earn virtually nothing on their investments as long as their principal is preserved.
The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude rose 48 cents to $54.43 a barrel on the New York Mercantile Exchange.
Joe Kettle, senior wealth manager at Dawson Wealth Management, said Tuesday's rise in stocks is not a sign that investors are moving back into the market. In fact, he believe that "we're seeing more of the same."
"What you're seeing is just a total lack of buyers," he said. "There is no enthusiasm on the buy side right now. You got a little spurt of it today because Hewlett-Packard's earnings were good and their outlook was good."
Shares of HP soared $3.32, or 11.4 percent, to $32.65.
In other corporate news, executives of General Motors Corp., Ford Motor Co. and Chrysler LLC and the head of the United Auto Workers union will testify at a Senate Banking Committee hearing. The automakers, seeking $25 billion in government aid, have the backing of Democratic congressional leaders, but the Bush administration and Republican lawmakers are against the proposed bailout.
Ford shares rose 2 cents to $1.75, while GM shed 21 cents, or 6.6 percent, to $2.97. Chrysler is owned by an investor group that includes private-equity firm Cerberus Capital Management.
Home Depot Inc. reported a 31 percent drop in third-quarter profit due to weak consumer spending at its established locations. The profit was better than analysts anticipated, and its shares rose 75 cents to $20.75.
Yahoo Inc. shares spiked $1.41, or 13.3 percent, to $12.04 after founder Jerry Yang announced that he was stepping down as chief executive of the Internet company. Many analysts believe the departure will accelerate an overhaul of Yahoo and lead to a sale to Microsoft.
In Asian trading, Japan's Nikkei index fell 2.28 percent, and Hong Kong's Hang Seng Index fell 4.54 percent. In midday trading in Europe, Britain's FTSE 100 fell 0.78 percent, Germany's DAX index fell 0.89 percent, and France's CAC-40 fell 0.90 percent.