Wall Street up in volatile trade

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Stocks rose more than 1 per cent on Tuesday after the previous session's nosedive, but markets could reverse if investors are not convinced the Federal Reserve has a plan to combat the meltdown linked to fears of a new recession.

After opening higher, stocks almost immediately lost gains, with the Dow briefly turning negative. However, they then bounced off those lows and returned solidly positive.

Equities suffered a massive decline on Monday, the first session since the United States lost it top-tier credit rating, with the S&P posting its worst one-day loss since December 2008 and nearing bear market territory. Volume was the heaviest since the "flash crash" in May 2010.

"People are hoping the Fed is working on a plan that will come out later today, and that, along with yesterday's selloff, is why we're rising now," said Jeff Duncan, president of Duncan Financial Management in Sunset Hills, Missouri.

The Dow Jones industrial average was up 156.48 points, or 1.45 per cent, at 10,966.33. The Standard & Poor's 500 Index was up 19.89 points, or 1.78 per cent, at 1,139.35. The Nasdaq Composite Index was up 50.05 points, or 2.12 per cent, at 2,407.74.

Federal Reserve policymakers began meeting Tuesday morning, and a Fed statement is due at 2:15 p.m EDT. While the central bank isn't expected to debut any new program to help asset prices, selling could re-emerge if there's no indication that help is on the way.

Duncan said he didn't think a plan would be enough to help stocks, but if investors were disappointed, "I feel we could head down to 1,040 on the S&P, and if that's breached we're really going to head down."

The CBOE Volatility index fell 13.8 per cent, but was still up more than 60 per cent so far this month.

Standard & Poor's downgrade of the US credit rating late Friday, removing the nation's triple-A designation for the first time in history, sparked the decline and underlined fears a recession was inevitable given increasing signs of slowing growth and more turmoil in the euro zone.

According to a Reuters poll, the US faces one-in-four odds of slipping back into recession, though the economic outlook is raising the likelihood of new Fed action.

Even though fear remained a dominant emotion in the markets, analysts said stocks could be nearing a bottom. They noted the S&P was now more technically oversold than at any other time in the last ten years, with its 14-day relative strength index was at 16.5 per cent. Generally a level below 20 attracts buyers.

Bank of America Corp, the S&P's biggest decliner on Monday, climbed nearly 7 per cent to $6.96.