updated 7/23/2008 7:10:04 AM ET 2008-07-23T11:10:04

Wall Street shook off early doldrums and closed sharply higher Tuesday after another drop in oil prices encouraged investors to set aside financial sector worries and go bargain hunting across the market. The Dow Jones industrial average rose more than 130 points.

Major Market Indices

Stocks initially fell on uneasiness about the continuing impact of the housing market downturn and the credit crisis on financial company earnings. Disappointing results from American Express Co. and Wachovia Corp. fed those worries.

But a $3 drop in oil — which took crude’s decline in recent weeks to nearly $20 a barrel — persuaded some investors to wade back into equities.

Even Wachovia Corp., the nation’s fourth-largest bank, shot 27 percent higher after its stock tumbled to levels not seen since the early-1990s. The stock was pummeled after the retail bank posted an $8.9 billion loss because of charges and reserves for bad mortgage loans.

The focus on higher oil’s impact on the economy has been so intense that any notch lower breeds optimism that the commodities run-up might perhaps be nearing an end, analysts said. That means, for the moment, corporate earnings reports have lost some of their dominance of the market.

The market was looking at the long-term impact of somewhat cheaper energy — and likely betting that company earnings would pick up if oil extends its decline.

“There’s been so many people speculating about oil taking off and how to handle it, the whole economy has been focused on it,” said Todd Leone, managing director of equity trading at Cowen & Co. “Just the fact that it has dropped — a big move down — helps out. There’s the perception that this will get the economy going again.”

He acknowledged that there was no shortage of disappointing results at America’s biggest companies — American Express Co., Apple Inc. and Texas Instruments Inc. all fell short of expectations. And Wachovia’s miss was at least initially sobering for investors who last week sent stocks soaring after better-than-estimated reports from Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co.

Global banks and brokerages have written down some $300 billion of mortgage-backed securities and other risky investments since the crisis began last year. Investors also got a fresh look at how badly the turmoil has hurt financial companies. Following Tuesday’s closing bell in New York, both Washington Mutual Inc. and E-Trade Financial Corp. reported losses after boosting reserves to cover bad loans.

The Dow rose 135.16, or 1.18 percent, to 11,602.50. The blue chip index rose 400 points last week, but ended Monday’s session slightly lower.

Broader indexes also rose Tuesday. The Standard & Poor’s 500 index jumped 17.00, or 1.35 percent, to 1,277.00. The technology-dominated Nasdaq composite index, which was down for much of the session on tech earnings disappointments, ended up 24.43, or 1.07 percent, at 2,303.96.

The Russell 2000 index of smaller companies rose 19.19, or 2.75 percent, to 716.82.

The price of oil began the session mildly lower on expectations that Tropical Storm Dolly wouldn’t disrupt oil operations in the Gulf of Mexico. The advance increased after comments from a Federal Reserve official sent the dollar higher against major currencies, a trend that in turn sends commodities lower.

A barrel of light, sweet crude tumbled $3.09 to settle at $127.95 on the New York Mercantile Exchange, down nearly $20 from its record high of $147.27, reached just weeks ago.

Philadelphia Federal Reserve President Charles Plosser said there could be rate hikes “sooner rather than later” even if employment and financial conditions haven’t revived. Higher rates also would make some government debt less attractive, and that sent Treasury bonds sharply lower.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.10 percent from 4.04 percent late Monday. Government debt also weakened as investors moved into equities.

Ryan Larson, senior equity trader at Voyageur Asset Management, said the “oil prices are alleviating some fears” triggered by a number of disappointing earnings reports. So far, the growth rate of Standard & Poor’s 500 index companies reporting has fallen to negative 14.7 percent, according to Thomson Financial.

“Lower oil prices are diverting attention from earnings for the moment,” Larson said. “There’s no questions about some negative earnings reports coming out, but we’re starting to think some of them might be company specific and not broader.”

Investors will get more data with some 158 members of the S&P 500 expected to report this week, the busiest since second-quarter earnings season began earlier this month.

Earnings reports released in the past few days showed some indications that consumers — responsible for more than two-thirds of U.S. economic activity — are scaling back on purchases. American Express, whose credit cards cater to more affluent customers, missed projections after setting aside more money to cover souring loans across all its portfolios. The stock fell $2.91, or 7.1 percent, to $37.99.

Technology stocks were lower early in the session after Apple, which makes iPods and iMac computers, beat expectations but issued a weaker-than-expected forecast for the current quarter. The stock fell $4.27, or 2.6 percent, to $162.02. Texas Instruments fell $4.17, or 15 percent, to $24.35 after it missed expectations because of a slowdown in orders.

Advancing issues outpaced decliners by more than 2 to 1 on the New York Stock Exchange, where about 6.04 billion shares changed hands in consolidated trading compared with about 4.5 billion shares on Monday.

Japan’s Nikkei stock average rose 2.98 percent. Britain’s FTSE 100 fell 0.74 percent, Germany’s DAX index rose 0.28 percent, and France’s CAC-40 edged up less than 0.01 percent.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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