Stocks Rally to End Higher

STEVEN RUSSOLILLO

Stocks rallied in the final hour of trading after a report that European Union finance ministers are discussing ways to recapitalize the Continent's banks.

Banks took a beating on Tuesday morning, amid continued selling as market watchers keep tabs on Ben Bernanke's testimony to Congress, Steven Russolillo reports on Markets Hub.

The Dow Jones Industrial Average rose 153.41 points, or 1.4%, to 10808.71, after falling as much as 251 points. The blue-chip index was down more than 200 points in the last hour of trading before turning positive and zooming higher in the final minutes of action.

The gains come after the Dow had fallen 498.68 points over the previous two trading days and closed Monday at its lowest level in more than a year.

The Standard & Poor's 500-stock index surged 24.72 points, or 2.3%, to 1123.95, led by financial stocks. Morgan Stanley jumped 12%, while Dow components J.P. Morgan Chase gained 6.6% and Bank of America rose 4.2%.

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A trader on the floor Tuesday.

The technology-heavy Nasdaq Composite gained 68.99 points, or 2.95%, to 2404.82.

The reversal comes after the Financial Times reported EU finance ministers, meeting in Luxembourg, concluded that they hadn't done enough to convince financial markets that Europe's banks could withstand the debt crisis.

Traders also pointed to news that Franco-Belgian lender Dexia is set to park assets into a "bad bank," a vehicle backed by guarantees from the French and Belgian governments.

Stocks opened down sharply as S&P edges into bear territory following a 20% drop off April's highs. MarketBeat's Mark Gongloff and Paul Vigna discuss market influences on Markets Hub. Photo: AP.

"It appears like something more concrete out of the euro zone that may be fueling this right now," said Stephen Carl, head equity trader at the Williams Capital Group.

Fears of European debt defaults haven't only weighed on markets for months, but also contributed to worries of a global recession. Greece warned over the weekend that it would fail to meet its targets for reducing its budget deficit this year, which reinforced a widespread concern that the government would default on its debt.