Stocks recover after battering

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NEW YORK (CNNMoney.com) -- Stocks rose Tuesday afternoon, but cut bigger morning gains, as investors scooped up shares beaten down in the prior session's big selloff, but remained edgy about the outlook for the economy.

The Dow Jones industrial average (Charts) gained 125 points, or about 1 percent, with about 30 minutes left in the session. The Dow had been up nearly 250 points in the early afternoon.

The S&P 500 (Charts) index added 0.6 percent and the Nasdaq composite (Charts) rose 0.8 percent.

"Stocks are up, but it feels like we're down," said Tom Schrader, managing director of U.S. equity trading at Legg Mason. "There's still a lot of negative sentiment out there."

Stocks skidded Monday on news that HSBC Holdings (Charts) will have to bail out two of its failing funds, and rumors that Citigroup (Charts, Fortune 500) could announce big layoffs. The three major indexes all finished Monday's session at least 10 percent below their recent peaks, which is defined as a market correction.

The bad news from the financial sector revived fears that the credit and mortgage market crisis is dragging the economy into recession and the Federal Reserve may not be able to intervene fast enough.

Those fears were tempered Tuesday by some reassurance out of the banking sector. Citigroup (Charts, Fortune 500) said late Monday that the Abu Dhabi Investment Authority will invest $7.5 billion in the bank to help offset credit losses - in exchange for a stake of up to 4.9 percent.

"The message that the Citigroup news sends is that there are still pockets of money out there available, that players are still willing to step up and do what it takes to aid these financial institutions," said Greg Church, president of Church Capital.

Nonetheless, concerns about the threat of recession remain and stocks are bound to remain choppy in the weeks ahead, particularly as investors look to the Dec. 11 Fed meeting.

Citigroup shares slipped despite the encouraging news, although other big financial stocks rose. Gainers including JP Morgan (Charts, Fortune 500), Merrill Lynch (Charts, Fortune 500), American Express (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500).

Also, on Tuesday, London bank Barclays (Charts) said it expects 2007 earnings to be largely in line with estimates. Barclays shares gained 7 percent in U.S. trading.

Gains were broad based, with 26 out of 30 Dow stocks rising, led by the financial components, Intel (Charts, Fortune 500), IBM (Charts, Fortune 500) and Merck (Charts, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners trounced losers two to one on volume of 850 million shares. On the Nasdaq, advancers topped decliners three to two on volume of 1.26 billion shares.

Also helping restore some confidence: falling oil prices. U.S. light crude oil for January delivery fell $3.28 to settle at $94.22 a barrel on the New York Mercantile Exchange amid growing bets that OPEC ministers will agree to raise crude production when they meet in early December.

Stocks briefly stumbled after the 10 a.m. ET release of the November Consumer Confidence report, which was weaker than expected. Confidence fell to 87.3 in the month, down from 95.6 in the prior month and short of forecasts for a fall to 91.5.

Treasury prices tumbled Tuesday as investors took profits after Monday's big rally, pushing the corresponding yields higher.

Bond prices surged Monday as stocks fell, with investors seeking the relative safety of government debt. That advance had pushed down the yield on the benchmark 10-year note to 3.83 percent - the lowest level since June 2005. Treasury prices and yields move in opposite directions.

In currency trading, the dollar gained a bit versus the euro and yen.

COMEX gold for December delivery tumbled $12.50 to settle at $814 an ounce, falling along with other dollar-traded commodities.

The big selloff Monday left the three major gauges down at least 10 percent from the October highs, technically a market correction. Over the summer, the S&P 500 briefly "corrected" intraday, but ended the session off its lows.

The recent correction sparked concerns that the stock market could be due for a bigger selloff before it can make a sustained effort to rally again.

-- CNNMoney.com staff writer Steve Hargreaves contributed to this report.