Stocks stage recovery

NEW YORK (CNNMoney.com) -- Stocks recovered near midday Tuesday, on initial positive reports about the meeting between Federal Reserve Chairman Bernanke, Treasury Secretary Paulson and Senator Dodd regarding the problems in the financial markets.

The Dow Jones industrial average (down 7.24 to 13,114.11, Charts) added 0.2 percent over 2-1/2 hours into the session, while the broader S&P 500 (up 3.05 to 1,448.60, Charts) index gained 0.5 percent. The tech-fueled Nasdaq Composite (up 13.59 to 2,522.18, Charts) index gained 0.6 percent.

Video More video CNN's Gerri Willis offers tips for weathering the mortgage industry troubles. Play video Video More video Justin Urquhart Stewart of Seven Investment Management joins CNN to talk about mortgages and the markets. Play video

Stocks had slipped in the morning amid ongoing worries about problems in the credit and mortgage markets. At the same time, Treasury prices rallied for a second session in a classic 'flight-to-quality' move.

Stocks have suffered over the last month amid worries about the tightening of credit - connected to the housing market collapse and problems with the subprime mortgage market. Subprime loans are loans made to consumers with less than ideal credit.

But stock prices improved Tuesday near midday after reports emerged about the closed door meeting between Bernanke, Paulson and Dodd. Although nothing specific emerged from the meeting, the fact of the meeting itself was likely reassuring to market participants.

Senate Banking Committee leader Christopher Dodd said after the meeting that he urged Bernanke and Paulson to use all the tools at their disposal to keep markets working, Reuters reported.

One issue that remains in debate is the lifting of portfolio caps on housing finance leaders Fannie Mae and Freddie Mac, a move that critics say would be reassuring to investors who can reasonably get a good mortgage. Sen. Dodd said that he brought the issue up with the Treasury Secretary, but that Paulson showed reluctance to lift the caps.

The Federal Reserve has been infusing billions into the banking system in recent days as a means of trying to keep the liquidity moving. On Monday, it added $3.75 billion.

Last week, the Fed cut its largely symbolic discount rate - which affects banks and other lenders - by a half-percentage point to 5.75 percent. The move raised bets that it may cut the more widely-watched fed funds rate - which affects consumer loans - at the Sept. 18 policy meeting.

Financial, mortgage and consumer stocks in particular have suffered within the recent slowdown, and they were among the stocks leading a midday recovery attempt.

Additionally, a 2 percent slide in the price of oil was helpful to the fuel-dependant airline sector, sparking a rally in those stocks.

Troubled lender Countrywide Financial (up $1.84 to $21.65, Charts, Fortune 500) found some relief Tuesday on reports that billionaire investor Warren Buffett's Berkshire Hathaway (Charts) may be seeking to buy parts of the company.

Elsewhere in the sector, Capital One Financial (up $2.20 to $68.92, Charts, Fortune 500) said late Monday that it was closing its troubled GreenPoint mortgage unit, that it will cut 1,900 jobs and shutter 31 offices by the end of the year. Shares inched higher Tuesday.

But adding to concerns, an industry report showed that July foreclosures rose 9 percent from the previous month and almost doubled from a year ago.

In other news, Target (up $0.53 to $59.62, Charts, Fortune 500) reported higher quarterly earnings that met forecasts, offering some reassurance about consumer spending.

Micron Technology (up $0.49 to $11.47, Charts, Fortune 500) jumped 3 percent after A.G. Edwards upgraded it to "buy" from "hold," according to Reuters.

LSI Logic (up $0.40 to $6.58, Charts) shares jumped 8 percent after the company said it will sell its mobility products unit for $450 million to Infineon Technologies AG. The chip maker said it will use some of the proceeds toward a $500 million share repurchase plan.

Market breadth turned positive. On the New York Stock Exchange, winners beat losers three to two on volume of 590 million shares. On the Nasdaq, advancers beat decliners four to three on volume of 780 million shares.

Treasury prices gained, lowering the benchmark 10-year note yield to 4.58 percent from 4.63 percent late Monday. Bond prices and yields move in opposite directions.

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

U.S. light crude oil for September delivery fell $1.62 to $69.50 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $2.50 to $669 an ounce.