Investors bid stocks up as oil prices declined. Stocks that had been doing poorly for weeks, such as retailers and consumer goods companies, rebounded.

"Maybe it's one of those things where the balloon was pushed under water so far that it's bounced to the surface," said Jon Brorson, head of growth equities at Neuberger Berman in Chicago.

Investors still feared that Rita could compound the damage done by Hurricane Katrina, leading to higher oil prices and a dramatic drop in consumer spending. "It's all about oil," said Paul McManus, senior vice president and director of research, Independence Investment LLC. Traders sent their clients weather updates and lists of oil rigs at risk Wednesday morning.

But as the National Hurricane Center downgraded the storm to Category 4 from Category 5 during the afternoon, some investors relaxed a little and starting searching for bargains after three down days.

"Everyone is just sitting back and watching their weather maps," McManus said.

Crude oil futures fell as fears about the storm lost some intensity. A barrel of light crude settled at $66.50, down 30 cents, on the New York Mercantile Exchange.

The Dow Jones industrial average rose 44.02, or 0.42 percent, to 10,422.05 after losing nearly 264 points since Monday and falling 27 more points Thursday before turning higher. Gains by Dow components McDonald's Corp. and Wal-Mart Stores Inc. led the index higher.

Broader stock indicators also closed up. The Standard & Poor's 500 index rose 4.42, or 0.37 percent, to 1,214.62, and the Nasdaq composite index rose 4.14, or 0.2 percent, to 2,110.78.

Bonds dipped, with the yield on the 10-year Treasury note rising to 4.18 percent, up from 4.17 percent late Tuesday. The U.S. dollar was mixed against other major currencies in European trading. Gold prices were lower.

The Labor Department reported that the number of Americans thrown out of work by Katrina shot up by 103,000 last week, bringing the total seeking jobless benefits because of the storm to 214,000.

Meanwhile, the Conference Board said its Index of Leading Economic Indicators fell for the second straight month during August as consumer sentiment weakened. The data for the index was collected before Katrina's devastation of the Gulf Coast, and it is likely that the September reading for the index will be even weaker.

Nonetheless, some investors were optimistic that the Fed, despite its decision on Tuesday to continue raising rates, will decide to change its strategy if evidence continues to point to a slower economy.

In company news, McDonald's rose $1.67 to $33.09 after the company said higher gasoline prices will have a "limited" affect on its business. Wal-Mart rose 70 cents to $43.19 after the company detailed the power generators and trucks of water it had sent to Texas.

Delta Air Lines Inc., the nation's third-largest carrier, rose 5 cents to 82 cents after it said it will cut up to 9,000 jobs, reduce employee pay and make changes to its network to focus more on international flying as it moves to restructure its costs in bankruptcy.

The foodmaker General Mills Inc. gained $1.51 to $46.19 after its first-quarter earnings rose almost 38 percent, well ahead of analysts' predictions. The company said earnings for the year will come in below earlier expectations, due to higher fuel prices.

The New York Times Co. rose 33 cents to $30.33 despite Standard & Poor's announcement late yesterday that it was reviewing the ratings of the media company's debt a day after it lowered its earnings forecasts.

Declining issues led advancers 9 to 7 on the New York Stock Exhange where preliminary consolidated volume was 2.42 billion shares, down from 2.55 billion at the same time yesterday.

The Russell 2000 index of smaller companies rose 1.22, or 0.19 percent, to 651.16.

Overseas, Japan's Nikkei stock average fell 0.28 percent. Britain's FTSE 100 rose 0.30 percent, Germany's DAX index fell 0.54 percent, and France's CAC-40 fell 0.45 percent.