updated 10/21/2008 6:57:11 AM ET 2008-10-21T10:57:11

Wall Street bounded higher Monday, extending its streak of volatility as investors, regaining more of their confidence, bought stocks on growing signs that the credit markets are reviving. The Dow Jones industrials rose more than 300 points, and all the major indexes were up more than 2 percent.

Major Market Indices

Investors who had sold furiously in recent weeks in response to immobile credit markets became more optimistic as bank-to-bank lending rates eased further.

The improvement lending rates helped to temper concerns about tight credit contributing to a prolonged recession, but Federal Reserve Chairman Ben Bernanke still warned that the economy is likely to be “weak for several quarters, and with some risk of a protracted slowdown.” He told the House Budget Committee that a fresh round of government moves might help ease the country’s economic weakness.

“The market liked what Bernanke had to say, and there were hints that he’s leaving the door open for further moves in terms of rate cuts or economic stimulus,” said Ryan Larson, head of equity trading at Voyageur Asset Management. “And, with credit easing in slow baby steps, the market has started to realize that this is going to be a process.”

Wall Street was also sifting through the first of hundreds of earnings reports expected this week, seeking clues about future business conditions. Among those reporting, oilfield services provider Halliburton Co. topped estimates, and CEO Dave Lesar told investors and analysts in a conference call, “We expect that any major macroeconomic disruptions will ultimately correct themselves.”

Trading was orderly for much of the day, but the final hour again saw frenetic activity, this time to the upside. The market’s tone was clearly better than during the previous two weeks, when investors’ heightened anxiety about credit markets and the economy sent stocks plunging. The relative calm in Friday’s session, when the Dow fell 127, and Monday’s trading, had more investors feeling confident that the worst of the market’s volatility was behind it.

Still, with back-and-forth trading a hallmark during recoveries from plunges in the past, investors were also expecting that Wall Street would be subject to price swings for some time.

The Dow rose 306.88, or 3.47 percent, to 9,159.10.

Broader indexes also rose sharply. The Standard & Poor’s 500 index rose 35.51, or 3.78 percent, to 976.06. The Nasdaq composite index rose 40.12, or 2.34 percent, to 1,751.41.

The credit markets were gradually responding to the series of bailout measures by governments around the world, including a joint U.S. and European plan to buy stakes in private banks to boost their lending. Demand for Treasury bills, regarded as the safest assets around, lessened Monday but remained relatively high in a sign that there was still much fear in the markets.

The three-month Treasury bill Monday yielded 1.112 percent, up from 0.82 percent late Friday. That’s better than the 0.20 percent of last Wednesday, but and the first time it surpassed 1 percent in more than a week.

Investors were also optimistic about the steady decline in interbank lending rates, which fell for a sixth straight day Monday. The London interbank offered rate, or Libor, for three-month dollar loans fell 0.36 percent to 4.06 percent, the biggest daily drop since January.

The benchmark 10-year Treasury note was little changed. The yield, which moves opposite its price, rose to 3.92 percent from 3.93 percent late Friday.

Todd Leone, managing director of equity trading at Cowen & Co., said many investors were feeling optimistic that credit is slowly becoming more available. He also believes that Bernanke’s remarks, along with the fact earnings haven’t been dismal, are help markets move higher.

“People are just getting comfortable with buying again,” said Todd Leone, managing director of equity trading at Cowen & Co. “We still could see another big drop, but those big drops are going to get less and less.”

Investors also received a bit more detail about how Treasury Secretary Henry Paulson plans to roll out a $250 billion plan to recapitalize banks. Paulson said the government will own shares in the banks that should be paid back with a reasonable return, and expects that the investment will eventually make money.

Meanwhile, there was some optimistic data that showed the economy’s health improved for the first time in five months in September as supplier deliveries and new orders strengthened, a private research group said Monday. The New York-based Conference Board said its monthly forecast of future economic activity rose 0.3 percent, a much better reading than the 0.2 percent drop expected by Wall Street economists surveyed by Thomson/IFR.

Light, sweet crude rose $2.40 to $74.25 a barrel on the New York Mercantile Exchange. Last week, it sank to an almost 16-month low on worries about a deep global recession obliterating fuel demand.

The Russell 2000 index of smaller companies rose 15.15, or 2.88 percent, to 541.58.

Advancing issues outpaced decliners by about 5 to 1 on the New York Stock Exchange, where volume was a light 862.1 million shares.

Financial markets overseas were higher. Japan’s Nikkei stock average closed up 3.59 percent. Britain’s FTSE 100 was up 3.81 percent, Germany’s DAX index was up 0.99 percent, and France’s CAC-40 was up 2.60 percent.

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