Investment In Citigroup Buoys Markets

NEW YORK - Wall Street rebounded Tuesday after Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup, a vote of confidence for the bank that has suffered severe losses amid the ongoing crisis in the mortgage market.

The Dow Jones industrials rose more than 200 points in yet another volatile session as investors were hopeful the financial sector can remain healthy despite the ongoing credit crisis.

The banking industry has been battered as defaults on home loans have risen and rendered some mortgage-backed securities essentially worthless.

Major financial institutions, including Citi and its competitors, have had to take some $80 billion in write-downs on those holdings, a trend that has left the markets nervous about the extent of the damage from soured loans. Citi's ability to secure a capital injection raised hope others might be able to do the same.

"The Citi deal is certainly a relief after a series of negative news on Monday with respect to the financials," said Todd Salamone, director of trading at Cincinnati-based Schaeffer's Investment Research. Funds like Abu Dhabi's "that have plenty of cash may be viewed as a potential rescuer, given the balance sheet troubles the banks are having." Still, the market showed some vulnerability to anyone raising the specter of a sagging economy, and that caused another day of big swings for major indexes.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he won't be surprised if U.S. economic data during the coming months is weak, and warned recent central bank rate cuts have increased the risk of higher inflation. Federal Reserve Bank of Chicago head Charles Evans said in a speech further turmoil in financial markets could cut into business investment and curb consumer spending on big-ticket items.

The Dow rose 215.00, or 1.69 percent, to 12,958.44 after being up nearly 250 points earlier in the session.

Broader stock indexes also moved higher, with the S&P 500 index up 21.01, or 1.49 percent, at 1,428.23, and crept back into positive territory for the year. The technology-heavy Nasdaq composite index went up 39.81, or 1.57 percent, at 2,580.80. The Russell 2000 index of smaller companies rose 8.20, or 1.12 percent, to 743.27.

The market has been erratic as investors have struggled with and tried to overcome concerns about the banking sector, the credit markets, consumer spending, energy prices and the overall economy.

A pullback in oil prices aided the market's gains. A barrel of light, sweet crude dropped $3.28 to $94.42 on the New York Mercantile Exchange on expectations that the Organization for Petroleum Exporting Countries will raise production at its Dec. 5 meeting.

Government bond prices fell. The yield on the 10-year Treasury note was at 3.95 late in the day, up from 3.85 percent late Monday.

The market showed little reaction to a report from the Conference Board that its Consumer Confidence Index dropped to its lowest point since October 2005. The index fell to 87.3 for November, down almost 8 points from the revised 95.2 during October, and below analyst expectations for a reading of 91.5.