NEW YORK (AP) -- Wall Street recovered from a sharp early drop Thursday as investors worrying about a revival of the banking crisis grew optimistic that the government will again help the financial industry.
News that Bank of America Corp. needs another government cash infusion had sent stocks sliding until mid-afternoon. The Dow Jones industrials had been down more than 200 points and fell below 8,000 for the first time since Nov. 21.
Stocks rebounded and moved higher as investors speculated about a Senate vote after the closing bell Thursday on whether to authorize use of the remaining $350 billion from the government's financial bailout fund. Observers say the outcome of the vote was too close to call. But investors were hoping additional money from Washington will help stabilize banks.
Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said the recovery in stocks was overdue given the market's steep slide the past week, and he said traders were looking for any reason to rally. He said investors might ultimately be disappointed by the government's efforts to boost the economy but that headlines about broad spending were enough to prod the market.
"That's the spark on top of the timber. That gets it going. That's all you need to get the market going," he said, referring to Washington's plans. "I think, bottom line, it's an oversold bounce. We'll see if it lasts."
Wall Street began the day nervous that the money given to banks might have prevented a collapse of some companies but has done little to repair their balance sheets. The federal government is considering a fresh multibillion-dollar aid package for Bank of America to help it absorb losses at Merrill Lynch, according to a person with knowledge of the discussions, who spoke to The Associated Press on condition of anonymity because of the sensitive nature of the discussions. The person said the new aid package could be modeled along the lines of the financial lifeline that was thrown to Citigroup Inc. in November.
Other media organizations have had similar reports of a potential aid package for the company.
There are also expectations that Citigroup will be announcing a further streamlining because of its ongoing problems and that banks will need more government help.
"There is this perception that at some point there is value, a belief that the markets are oversold," he said.
In midafternoon trading, the Dow rose 21.35, or 0.26 percent, to 8,221.49. The Dow closed down the past six sessions. Earlier in the session the Dow fell as much as 205 to trade below the 8,000 mark for the first time since Nov. 21. On Nov. 20, the Dow closed at its lowest level in more than five years.
Broader stock indicators rose. The Standard & Poor's 500 index rose 2.82, or 0.33 percent, to 845.44 and the technology-heavy Nasdaq composite index rose 10.98, or 0.74 percent, to 1,500.62.
The Russell 2000 index of smaller companies rose 3.59, or 0.79 percent, to 456.76.
Tech and small-cap stocks are often among the first places investors start buying when they think a recovery is at hand.
Losing issues narrowly outnumbers advancers on the New York Stock Exchange after leading 10-to-1 earlier in the session. Volume came to 956.8 million shares.
Bond prices were mixed as stocks pared their losses. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.21 percent from 2.20 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.11 percent from 0.10 percent late Wednesday.
The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude fell $1.94 to $35.34 a barrel on the New York Mercantile Exchange.
The Bank of America news more than offset any positives from a better-than-expected earnings report from JPMorgan Chase & Co. The banking company managed to avoid a loss, reporting earnings of $702 million in the October-December quarter. Analysts had predicted the company would break even.
Still, Chief Executive Jamie Dimon called the quarter "very disappointing." The bank said it increased its reserves to cover potential loan losses by $4.1 billion. Increased losses from bad loans are likely if the economy deteriorates, which is a "distinct possibility," Dimon said.
JPMorgan is the first big U.S. bank to release fourth-quarter earnings, and analysts and investors are looking at it for signs of how the rest of the industry may be faring. The bank, which bought failing Bear Stearns Cos. and Washington Mutual Inc. last year, is viewed as one of the stronger players in the industry, so results from other big banks could prove worse.
"The whole concern that we've had all along had been whether the steps taken by the government would be enough or would be effective, and I think that now is becoming a widespread worry on the Street," he said.
"If they pulled out all the stops, is there a way to save them?" Sparks said, referring to the government.