In the Treasury market, the four-week bill auctioned with a zero percent yield on Tuesday saw that rate increase.
However, the plan still faces headwinds as Republicans raised concerns about the bailout. The plan negotiated by the White House is being opposed by a group of conservatives led by Sen. John Ensign, R-Nev., who threatened to block the measure.
The proposal would provide relief for General Motors Corp. and Chrysler LLC. However, Ford Motor Co. Chief Executive Alan Mulally and Executive Chairman Bill Ford Jr. told The Associated Press Tuesday they don't need to take the bailout, and can restructure with new product plans.
Russell Croft of the Croft Value Fund in Baltimore, said a government rescue for the automakers is important because it could save the companies from bankruptcy and also prevent a cascade of financial troubles from extending into other companies tied to the industry.
He contends the reassurance of a bailout and the market's generally more measured moves in recent weeks are important because they could allow investor confidence to return even in the face of bad economic readings.
"We know the economic numbers are going to be bad," he said. "Hopefully some of the volatility will kind of slow down a bit."
In midday trading, the Dow Jones industrial average rose 158.26, or 1.82 percent, to 8,849.59. On Tuesday, the Dow shed 243 points as investors after disappointing corporate news reminded investors of the magnitude of the economy's troubles. Stocks have rallied for two sessions before the decline.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 16.81, or 1.89 percent, to 905.48, and the Nasdaq composite index rose 32.36, or 2.09 percent, to 1,579.70.
The market's run during the past several weeks has encouraged some on Wall Street that stocks might be carving out a sustainable recovery. Since reaching multiyear trading lows on Nov. 20, the Dow has risen 15 percent and the broader S&P 500 has risen 18.1 percent, while the Nasdaq is up 17.6 percent, even with Tuesday's decline.
Bond prices were mixed.
The yield on the four-week Treasury bill rose to 0.05 percent after having been auctioned on Tuesday with a yield of zero percent. The auction was a dramatic sign of how cautious investors are — they are willing to park their money for the short term in investments that will pay them nothing at all but that will preserve their principal.
The yield on the three-month T-bill fell to 0.02 percent from 0.03 percent late Tuesday, also indicating a high degree of investor unease. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.69 percent from 2.65 percent late Tuesday.
The dollar was lower against most other major currencies, while gold prices rose.
Investors looked past a sharp drop in wholesale inventories. The Commerce Department said wholesalers reduced their inventories in October by the largest amount since after the 2001 terrorist attacks as their sales fell by a record amount. Inventories fell by 1.1 percent, far beyond the 0.2 percent decrease economists expected.
Wall Street appears growing more accustomed to the idea that economic news will remain dismal for at least several months and likely well into next year.
The automakers advanced on word of an agreement for aid. GM rose 13 cents, or 2.8 percent, to $4.83, while Ford rose 5 cents, or 1.6 percent, to $3.28. Chrysler isn't publicly traded.
GMAC Financial Services, the financing arm of General Motors, said it hasn't raised enough capital to become a bank holding company and be eligible for aid under the government's $700 billion bank rescue plan. The company, in which GM holds a 49 percent stake, needs a minimum total regulatory capital of $30 billion to become a bank holding company.
One of Yahoo Inc.'s biggest shareholders issued an open letter to the Internet company's board urging a deal with Microsoft Inc. be salvaged. Ivory Investment Management LP, which owns a 1.5 percent stake in Yahoo, said the company should sell its search engine business to Microsoft that could deliver shareholders between $24 and $29 a share.
Yahoo declined to comment on the letter, while Microsoft didn't immediately respond to a request for comment. Yahoo rose 92 cents, or 7.6 percent, to $13.11 and Microsoft rose 26 cents, or 1.3 percent, to $20.86.
American International Group Inc. owes Wall Street investment banks about $10 billion for speculative trades that went bad, according to The Wall Street Journal. The debt exemplifies the challenges the insurer faces as it seeks to recover under a U.S. government rescue, the Journal reported, speaking to people familiar with the matter. AIG fell 15 cents, or 7.8 percent, to $1.78.
Rio Tinto Group said Wednesday it will cut 14,000 jobs worldwide and reduce capital investment as part of new measures to reduce its debt amid waning demand for iron ore and other metals. The stock rose $17.44, or 24 percent, to $90.53.
Oil prices rose above $44 a barrel as investors looked to an expected OPEC production cut next week, a moved aimed at helping to stabilize prices that have plummeted amid a global economic slowdown. Light, sweet crude rose $2.28 to $44.35 a barrel on the New York Mercantile Exchange.
Overseas, Hong Kong's Hang Seng index closed up 5.59 percent, while Japan's Nikkei 225 added 3.15 percent. In afternoon trading, Britain's FTSE-100 fell 0.58 percent, Germany's DAX added 0.72 percent, and France's CAC-40 rose 0.68 percent.