The market seesawed as financial companies retreated on fears that some might have to come up with fresh capital as they struggle with tattered balance sheets.
American International Group Inc. said Wednesday it is trying to work out plans to square away $10 billion lost in bad trades without turning to tax payers for more money. Last month, the government said it would provide $150 billion to help the insurer remain afloat after tight credit markets made it difficult to access cash.
That fed worries that other financial houses might be facing their own troubles after placing wrong bets in the unforgiving markets in recent months. The concerns rippled through financial services stocks, causing banks including Citigroup Inc. to give up early gains.
Wall Street was also nervous about the level of opposition to efforts to aid U.S. automakers. Democrats in Congress and the White House finalized an agreement on $14 billion in loans for Detroit's struggling car companies. However, the plan negotiated by the White House is being opposed by a group of conservatives led by Sen. John Ensign, R-Nev.
The proposal would provide relief for General Motors Corp. and Chrysler LLC. 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.
Russell Croft of the Croft Value Fund in Baltimore, said a government rescue for the automakers is important because it could not only prevent bankruptcy filings but prevent financial troubles from spreading to other companies tied to the industry.
In late afternoon trading, the Dow Jones industrial average rose 18.88, or 0.22 percent, to 8,710.21. 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 advanced. The Standard & Poor's 500 index rose 2.62, or 0.29 percent, to 891.29, and the Nasdaq composite index rose 4.14, or 0.27 percent, to 1,551.48.
The Russell 2000 index of smaller companies rose 3.11, or 0.67 percent, to 468.82.
The number of stocks advancing on the New York Stock Exchange outpaced those declining by 3 to 2. Volume came to a light 852.5 million shares.
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, despite Tuesday's decline.
In the Treasury market, the four-week bill auctioned with a zero percent yield on Tuesday saw that rate increase. The yield 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 0.01 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 2.68 percent from 2.65 percent late Tuesday.
The dollar was lower against most other major currencies, while gold prices rose.
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. 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 economists expected.
Croft contends 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."
AIG fell 20 cents, 10.3 percent, to $1.73, while Citigroup fell 28 cents, or 3.3 percent, to $8.26 and JPMorgan Chase & Co. fell 56 cents, or 1.7 percent, to $33.40. Morgan Stanley fell 74 cents, or 4.9 percent, to $14.23.
The automakers also declined. GM fell 22 cents, or 4.7 percent, to $4.48, while Ford fell 10 cents, or 3.1 percent, to $3.13. Chrysler isn't publicly traded.
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 rose 75 cents, or 6.2 percent, to $12.94 and Microsoft fell 10 cents, or 0.49 percent, to $20.50.
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. Britain's FTSE-100 fell 0.32 percent, Germany's DAX added 0.54 percent, and France's CAC-40 rose 0.68 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com