NEW YORK (CNN/Money) - Stocks gained Monday, recovering from an earlier selloff, as oil prices fell and AIG rose after New York Attorney General Eliot Spitzer said that a civil resolution with the embattled insurer will be possible.

The Nasdaq composite (Research) added 0.3 percent, after having seen declines of 0.5 percent earlier in the afternoon.

The Dow Jones industrial average (up 16.84 to 10,421.14, Charts) added around 0.2 percent. Earlier in the afternoon, the Dow had fallen to a five-month low, and closed just above that level.

The broader Standard & Poor's 500 (up 3.20 to 1,176.12, Charts) index added 0.3 percent.

Oil reversed course, falling after hitting a new record trading high of $58.28 a barrel on the New York Mercantile Exchange earlier. Crude oil for May delivery closed at $57.01, down 26 cents from Friday's record closing high of $57.27.

Worries about inflation and rising oil prices sent stocks tumbling Friday, and have weighed on the market over the last few weeks.

Because stocks have slid for nearly four weeks, the market remains oversold, and therefore could drift higher this week, said Paul H. Levine, president at Lifetime Financial Strategies.

Despite this, "I think we are biding our time here," he added, noting that the market is coming into a seasonal period when the cash flow is negative, ahead of tax day, April 15. In addition, earnings won't really start pouring until next week, so that catalyst won't kick in.

"AIG had an effect on the Dow today, but day to day events don't change the major trends," he added. "The dollar is going to continue to weaken, oil prices keep rising, inflation keeps rising, and consumer spending is going to have to start leveling off.

This week brings little in the way of economic news, and no meaningful quarterly earnings until Alcoa, after the bell Wednesday, keeping the focus on oil prices.

Also of interest Tuesday: Pfizer's meeting with analysts and Wal-Mart Stores' meet-and-greet with the media. Also, on Tuesday Federal Reserve Chairman Alan Greenspan will be appearing in San Antonio to speak about energy.

"The price of oil will be the main driver this week, particularly since there is so little economic news," said Art Hogan, chief market analyst at Jefferies & co.

American International Group (up $2.35 to $53.30, Research) rallied 4.6 percent, boosting the Dow, after the New York Attorney General said that a civil resolution to his office's probe of AIG's accounting was likely, as the insurer was cooperating. AIG stock has been hit hard of late amid the ongoing probe by Spitzer's office and by the Securities and Exchange Commission.

Earlier in the day, Smith Barney Citigroup upgraded AIG to "buy" from "hold" and Morgan Stanley reiterated its "overweight" rating. Both brokerages said that after its recent decline, the stock was a good value.

Market breadth was mixed. On the New York Stock Exchange, advancers edged decliners on volume of 1.63 billion shares. On the Nasdaq, losers topped winners eight to seven on volume of 1.62 billion shares.

ChevronTexaco said Monday that it will buy Unocal in a cash-and-stock deal worth around $16.4 billion. But the deal values Unocal (down $4.75 to $59.60, Research) stock below where it closed Friday and investors sent it 7.4 percent lower in response.

Shares of ChevronTexaco (down $2.33 to $56.98, Research) lost nearly 4 percent.

The influential financial sector managed to stabilize in the afternoon.

Shares of Morgan Stanley (up $1.43 to $58.30, Research) rose nearly 3 percent on reports that its board has approved the sale of its Discover Card unit in a deal that could net the bank $8 billion to $9 billion, according to Dow Jones.

Separately, a British newspaper reported that British-based HSBC Holdings was considering making an offer for Morgan Stanley.

Countering that was Fannie Mae (down $1.78 to $51.46, Research). The government-sponsored mortgage company sank about 3.3 percent after a Wall Street Journal article said regulators are looking into whether the company improperly accounted for the trusts it sets up to issue mortgage-backed securities.

The stock has been under pressure since regulators last year found that the company had violated certain accounting rules, prompting the company to restate several years of earnings.

General Motors (down $0.33 to $29.05, Research) announced a management shakeup, giving CEO Rick Wagoner responsibility for North American operations. Shares fell 1.1 percent.

Treasury prices edged lower, pushing the yield on the 10-year note up to 4.46 percent from 4.45 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar rose versus the euro and the yen.

That took a chunk out of gold and other dollar-traded commodities. COMEX gold fell $2.30 to settle at $426 an ounce.

In global trade, Asian-Pacific stocks ended mostly lower and European shares ended lower.