Credit markets tighten; stocks up nearly 500 points


NEW YORK (AP) - Wall Street snapped back Tuesday after its biggest sell-off in years amid growing expectations that lawmakers will salvage a $700 billion rescue plan for the financial sector. But the seized-up credit markets where businesses turn to raise money showed no sign of relief.

The rise in stocks wasn't unexpected as carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed. Without a bailout plan in place to absorb soured mortgage debt and other bad loans from banks' balance sheets, investors are wondering what might restore confidence in lending.

Major stock indexes were almost a sideshow during the session, with the credit markets as the main event. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.

LIBOR for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, rose to 5.27 percent, from 5.22 percent Monday.

Many on Wall Street had expected the government's plan would help sweep away some of the fear and pessimism that has hobbled credit markets, which are where businesses turn to finance their day-to-day operations. The worry is now basic operations like making payroll will be difficult or perhaps impossible for some companies. Critics of the plan said, however, that it was too costly and wouldn't have done enough to jump-start lending.

The failure of the House vote surprised Wall Street and triggered the biggest losses in stocks in years on Monday, driving up demand for safe-haven investments. The stock market sell-off, when measured by the broad Dow Jones Wilshire 5000 Composite Index, reflected a paper loss of $1.2 trillion.

At about 3 p.m., the Dow had risen 370.83 points to 10,738.28.

Traders on the floor of the New York Stock Exchange, still stunned from Monday's 778-point plunge in the Dow Jones industrial average, warned that the government needs to approve a plan that will sweep away the fears that hobbled the credit markets. While U.S. political leaders have vowed to revisit the issue, the House isn't slated to meet again until Thursday.

"If it doesn't pass, then look out below," said Jason Weisberg, an NYSE trader for Seaport Securities. "It could get ugly."