Big rally on Wall Street

NEW YORK (CNNMoney.com) -- Stocks surged Tuesday, with the Dow climbing nearly 320 points, after comments from executives at Goldman Sachs and other major banks reassured investors worried about the ongoing fallout from the credit market crisis.

Wal-Mart's earnings report and a nearly 4 percent slide in oil prices also played a role in the day's advance.

The Dow Jones industrial average (Charts) added just under 320 points, posting its second-biggest, single-day advance of the year. The S&P 500 (Charts) index added 2.9 percent and the Nasdaq composite (Charts) added 3.5 percent.

The Russell 2000 (Charts) small-cap index jumped 2.9 percent.

Treasury prices slipped, raising the corresponding yields. The dollar fell against the euro and gained against the yen. Oil and gold prices plunged.

Wal-Mart got the ball rolling at the open, but the advance picked up steam as the session wore on and investors took in comments from Goldman Sachs, Morgan Stanley, JP Morgan and other big banks speaking at a Merrill Lynch-organized financial conference. (Full story.)

"I think you saw relief today that the financial companies didn't indicate any looming meltdowns at the Merrill conference," said Ben Halliburton, chief investment officer at Tradition Capital Management. "And Goldman had some decent news, although it wasn't surprising."

Nonetheless, the banks are far from out of the woods, Halliburton said. "The financial stocks have come down sharply, and clearly there was a fair amount of short covering today."

Short covering refers to a process by which investors who have sold shares short to take advantage of a falling market need to buy them back.

That process was evidenced by the quality of the day's corporate news, which was good, but not as good as the stock market reaction would suggest, said Fred Dickson, chief market strategist at D.A. Davidson.

"I think we had an oversold market due for a bounce," Dickson said.

Stocks have been sliding, since the Dow and S&P 500 peaked at record highs in October and the Nasdaq hit a nearly 7-year high. On Monday, the Dow closed below 13,000 for the first time since August.

While the day's advance was positive, it doesn't indicate a new direction for the market going forward, the analysts said.

"If you look at the market over the last month, it doesn't take much to get investors whipped into a frenzy," said Chris Johnson, chief investment officer at Johnson Research Group.

"A 300-point day on the Dow a few years ago would have been a bigger deal than it is today," he said. "We're seeing these kinds of days more often now, with investors willing to step in and have a feeding frenzy on relatively light news."

Johnson said that because of this trend, and because of lingering questions about the economy, the bank sector, oil prices and consumer spending, stocks will stay choppy between now and the end of the year.

He said he doesn't expect stocks to finish the year much higher than where they stand now, with the S&P 500 likely to end in the 1475 to 1500 range.

The financial sector was one of the session's best performers, thanks to a combination of technical factors and the comments coming out of the Merrill Lynch conference.

Among the standouts: Goldman Sachs CEO Lloyd Blankfein said that the company won't take any further significant charges related to the subprime mortgage mess. JP Morgan CEO Jamie Dimon said his company is doing "fine" and sought to downplay its exposure to subprime and other debt.

Goldman (Charts, Fortune 500) shares rallied 8.5 percent and JP Morgan (Charts, Fortune 500) shares gained 6.2 percent.

Bank of America (Charts, Fortune 500) shares also rose, even after the company said it would take $3 billion in writedowns related to its bad debt bets.

Citigroup (Charts, Fortune 500) shares jumped nearly 7 percent and topped the New York Stock Exchange's most-actives list on reports that it is reorganizing its investment banking unit in the aftermath of billions of dollars in credit losses.

E*Trade Financial (Charts) shares bounced back nearly 41 percent after slumping 60 percent Monday on bankruptcy talk.

Banks have taken more than $40 billion in charges this year related to the mortgage market fallout, according to AP and Deutsche Bank estimates.

BlackRock (Charts) CEO Laurence Fink, also speaking at the Merrill conference, said that the worst for the credit markets is not yet over. Fink is reportedly a top candidate to become chief executive of Merrill Lynch following Stanley O'Neal's resignation last month.

Wal-Mart Stores (Charts, Fortune 500) reported higher third-quarter earnings that topped estimates and lifted its full-year earnings forecast to a range that is higher than analysts' current forecasts. The world's largest retailer also issued a somewhat cautious outlook for the fourth quarter, which includes the crucial holiday period.

However, investors focused on the positive, sending shares 6.2 percent higher.

Wal-Mart was one of 29 Dow components rising, reflecting the broad scope of the advance. The only Dow loser was DuPont, which fell less than 1 percent.

Home Depot (Charts, Fortune 500) managed to end the session with gains, after falling in the morning after it reported lower quarterly earnings that missed estimates. The Dow retailer also said fiscal-year profit will drop from a year earlier.

Apple (Charts, Fortune 500) led the list of large technology shares rallying. The tech leader rallied after China Mobile, China's largest cell phone carrier, said it was in talks with Apple to bring the iPhone to China.

Hewlett-Packard (Charts, Fortune 500), Oracle (Charts, Fortune 500) and Yahoo! (Charts, Fortune 500) were among the other big tech gainers.

Market breadth was positive and volume was strong. On the New York Stock Exchange, winners trounced losers by more than 4 to 1 on volume of nearly 1.66 billion shares. On the Nasdaq, advancers topped decliners 7 to 3 on volume of almost 2.71 billion shares.

Also helping the mood on Wall Street was a retreat in oil prices, from near record levels. U.S. light crude oil for December delivery fell $3.45 to settle at $91.17 a barrel on the New York Mercantile Exchange, sliding after the International Energy Agency cut its monthly forecast on crude demand.

The drop in oil prices gave a lift to airlines, truckers and railroads, companies that are directly dependent on fuel prices to conduct their business.

The Dow Jones Transportation (Charts) average climbed 2.4 percent.

COMEX gold for December delivery fell $8.70 to settle at $799 an ounce on the New York Mercantile Exchange, stalling after a big selloff in the previous session.

In currency trading, the dollar continued to slump against the euro. The greenback inched higher against the yen.

Treasury prices fell, raising the yield on the 10-year note to 4.26 percent from 4.22 percent late Monday. Treasury prices and yields move in opposite directions.

Stocks got an extra boost in the afternoon from the September pending home sales index, which rose 0.2 percent versus forecasts for a drop of 2.5 percent.

Wednesday brings the October retail sales report and the Producer Price Index (PPI), both of which are due before the start of trade. September business inventories and the weekly oil inventories reports are due after the start of trade.