NEW YORK (CNNMoney.com) -- Stocks erased most losses by the close Tuesday, with the Dow ending down just 22 points after having fallen close to 300 points earlier in the session, as worries about the global economy were tempered.
The Dow Jones industrial average (INDU) dropped 22 points, or 0.2%, recovering from larger losses earlier in the day. In the first hour of trading the Dow fell as much as 292 points to 9,774.48, the lowest level since Nov. 4.
Stocks had been hit hard through the early afternoon, but began to recover late in the session, with investors nibbling at bank and select technology and consumer issues.
Bank stocks bounced after comments from Barney Frank that one of the more intensely disliked components of the Wall Street reform proposal could end up being cut from the final bill.
The House Financial Services Committee Chairman said that a provision of the Senate's version of the bill that requires banks to spin off their derivatives businesses goes too far. However, he said another provision that stops banks from wagering with their own money is likely to go through. The House and Senate are in the process of reconciling different versions of the bill.
Stocks have been sliding for most of the month on worries about how the European debt crisis will impact global growth. Meanwhile, the euro has been plunging. On Tuesday, the shared European currency briefly fell to levels just above a four-year low it hit earlier in the month. However, the euro cut its losses as U.S. stocks recovered.
"There's been very little news to cause investors to think the market is going to rally against the backdrop of global uncertainty," said Len Blum, managing director at Westwood Capital.
Greece's debt crisis sparked the initial worries about Europe that now encompass the other so-called PIIGS - Portugal, Italy, Ireland and Spain. Spain has been in the news most recently after the country's central bank had to take over a long-established savings bank last weekend.
"We're one international economy right now, and it would be hard for the U.S. to have meaningful growth if Europe is having a slowdown," Blum said.
But another analyst said that Europe's impact on the broad U.S. economy could be more limited than market participants seem to think.
"There's an element of herding and panic in the markets right now," said George Feiger, CEO at Contango Capital Advisors.
"But I don't think what's happening in Europe is as dramatic a problem for the U.S. economy as the stock market is suggesting," he said.
Feiger said that U.S. exports will be constricted as European growth slows and multinational companies will feel the impact of the weaker euro. However, he said that what happens in China and other emerging markets is more directly tied to U.S. growth than what happens in Europe.
The Chinese government has taken steps to slow growth to tamp down inflationary pressure, but demand for all kinds of products and natural resources from emerging markets is expected to stay strong over the next few years.
Volatility: The CBOE Volatility index, or the VIX (VIX), Wall Street's fear gauge, turned lower in the afternoon as stock selling eased and investors dipped back into select issues. The VIX fell nearly 10% to 34.61 after rising earlier in the afternoon.
But even the earlier advance was modest compared to a week ago when the stock selloff was more intense. Last Thursday the VIX jumped 30% to settle at a 14-month high of 45.48.
Correction: Stocks are also vulnerable in the aftermath of a big rally that propelled the Dow 71% between the March 2009 lows and highs hit in late April. In that same time period, the S&P 500 gained 80% and the Nasdaq gained 99%.
Since those rally highs, the Dow lost 10.2%, the S&P 500 slipped 11.8% and the Nasdaq dropped 12.5% through Monday's close.
A decline of more than 10% off the highs means the market has met the technical definition of a correction. The selling has also raised worries about whether stocks are heading into a bear market, technically a decline of 20% to 30% off the highs.
Europe: Markets in Europe tumbled on growing concerns about the debt crisis and how it might impact the global economy. Britain's FTSE 100 fell 2.5%, Germany's DAX lost 2.3% and France's CAC 40 slid 2.9%.
Euro/dollar: The euro lost 0.7% versus the dollar, falling to $1.2285. Earlier, the euro had dropped to within fractions of the four-year low of $1.2146 it hit earlier this month.
The dollar dropped 0.4% against the yen.
Japan's Nikkei fell 3.1% and Hong Kong's Hang Seng fell 3.5%. China's Shanghai Composite fell 1.9%.
Economy: Home prices fell in the first part of 2010, although they are up from a year ago, according to the Case-Shiller 20-city home price index. The index fell 3.2% in the first quarter from the fourth quarter of last year, although it gained 2% versus a year ago.
The index dipped 0.5% in March from February's levels, but rose 2.4% from a year ago.
The housing outlook has been mixed lately, with a report on Monday showing a spike in existing home sales in April on the back of a tax incentive that expired last month.
Consumer confidence rose in May, with a Conference Board index climbing to 63.3 from an downwardly revised 57.7 in April. Economists thought the index would climb to 58.3.
Commodities: U.S. light crude oil for July delivery fell $1.46 to settle at $68.75 a barrel on the New York Mercantile Exchange.
Washington focused on the BP (BP) oil spill in the Gulf with both the Senate and House of Representatives holding hearings. Lawmakers in the Senate argued about whether a cap on BP's liability for damages needs to be changed.
COMEX gold for June delivery rose $4 to $1,198 an ounce.
Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.16% from 3.23% where it stood late Monday. Treasury prices and yields move in opposite directions.
Trading volume: Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.89 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of 2.9 billion shares.
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