However, a late-day plunge and recovery revealed investors' persistent unease over how problems in lending might hurt corporate America, despite the Fed's assurances.

The Dow Jones industrial average initially surged more than 190 points, then dropped into negative territory in the last hour of trading, reportedly on speculation that investment bank Goldman Sachs Group Inc. would release some negative news. When Goldman Sachs dispelled the rumor, the Dow rebounded to finish up more than 150 points.

The sell-off illustrated how quickly sentiment can turn. The stock market has been ricocheting up and down in recent weeks on worries that borrowing will get tougher because of losses in the subprime mortgage market.

The market has improved since the Fed meeting. But John O'Donoghue, co-head of equities at Cowen & Co. said: "It's hard for me to envision that all the potential problems with subprime have been resolved in two days."

He added: "We'll have to see how the dust settles here in the next few days ... I don't think the market has made up its mind what it wants to do."

Cisco profits boost market's mood

On the whole, though, Wall Street was pleased to hear that computer network equipment maker Cisco Systems Inc. posted a 25 percent jump in quarterly profit and raised its revenue forecast for the year. The upbeat technology news, along with strong recoveries in the beleaguered financial and homebuilding sectors, came a day after the Federal Reserve suggested that the lending environment isn't difficult enough to trip up the economy.

The Fed's suggestion that it wasn't too worried about the credit markets appeared to reinvigorate them: Risky, high-yielding corporate bonds rose, while safe, low-yielding government bonds fell.

According to preliminary calculations, the Dow rose 153.56, or 1.14 percent, to 13,657.86.

The Standard & Poor's 500 index rose 20.78, or 1.41 percent, to 1,497.49.

The technology-dominated Nasdaq composite index added 51.38, or 2.01 percent, to 2,612.98.

The Russell 2000 index of smaller companies gained 21.53, or 2.78 percent, to 795.66.

President Bush today tried to reassure Wall Street, expressing confidence that the stock market would eventually calm down, saying to a small group of reporters that "the underpinnings of our economy are strong."

Some sectors recover, while others stumble

Bonds plummeted as stocks rose, with the yield on the 10-year Treasury note rising to 4.86 percent from 4.77 percent yesterday. Investors exited government securities after the Fed's statement dashed hopes of a rate cut, and on rumors that Asian governments would get rid of some of their U.S. assets.

The financial and homebuilding sectors — big losers in recent weeks — saw large gains, with many investors seeing value in these pummeled stocks.

Bears Stearns Cos., whose collapsing hedge funds have been a prime cause of jitters in the market, rose 3.6 percent. Lehman Brothers rose 6.7 percent, JPMorgan Chase & Co. rose 2.6 percent, and American Express Co. rose 4.2 percent.

The housing market is still weak, though, which could keep Wall Street nervous going forward. Toll Brothers Inc.'s preliminary measure of fiscal third-quarter revenue showed home building revenue fell 21 percent. Still, the company's chief executive said he sees housing demand increasing, and the quarterly revenue estimate of $1.21 billion was better than analysts expected.

Toll Brothers rose $1.38, or 6 percent, to $24.33.

After releasing its quarterly results, Cisco rose $1.99, or 6.7 percent, to $31.68.

The Nasdaq was also helped by a stronger-than-expected second-quarter profit at Priceline.com Inc. The online travel agent's stock surged $14.47, or 22 percent, to $79.56.

The dollar fell against the euro and British pound, but rose against the yen. Gold prices rose.

Crude oil prices fell 27 cents to $72.15 a barrel, even after the U.S. Department of Energy reported that crude and gasoline inventories fell last week.

Advancing issues outnumbered decliners by about 8 to 3 on the New York Stock Exchange, where volume came to 2.60 billion shares, up from 2.14 billion shares traded yesterday.