Stocks rose in early trading Tuesday, rebounding from the biggest drop since 2008, and Treasuries fell as investors speculated the Federal Reserve might signal plans to safeguard the economic recovery.
The Dow Jones industrial average was up 172.67, or 1.6%, at 10,982.52 shortly after 10 a.m. EDT; and the S&P 500 was up 23.53, or 2.1%, at 1,142.99.
The drop in Treasuries, the benchmarks for the $34 trillion U.S. debt market that is more than twice the value of American equities, sent the 10-year yield up six basis points to 2.38%. The STOXX Europe 600 Index fell 0.1% after losing as much as 5.1%.
Oil fluctuated near $81 a barrel.
Fed policymakers will meet later Tuesday after the unprecedented downgrade of the government's top credit rating shook investor confidence in America's economic recovery. Speculation is growing Chairman Ben S. Bernanke might announce new steps to pump up growth. Harvard University economist Kenneth Rogoff said the central bank will embark on a third round of asset purchases.
“The market has convinced itself that Bernanke is going to, or has to, say something to calm the markets,” Wayne Lin, a money manager at Legg Mason, said in telephone interview. “It's a matter of confidence. After yesterday's drop in stocks, investors are hoping that the administration has gotten the message that they need to get their act together. The other part of it is that a lot of the measures we're looking at are saying that relative to bonds, stocks are very cheap.”
The MSCI ACWI fell for a 10th day, the longest losing streak since July 2008, as two stocks declined for every one that advanced. The gauge for developed and emerging markets dropped as much as 2% Tuesday, extending declines from this year's high in May to 20%, the threshold for a bear market.
Investors fled riskier assets Monday on the first trading day after S&P cut U.S. debt to the second-highest level of AA+ from AAA. Instead of declining, Treasuries rallied, sending the 10-year yield to the lowest since January 2009. The yield on the 10-year Treasury note jumped as much as 12 basis points Tuesday. The U.S. sells $32 billion of three-year notes Tuesday, the first of three auctions this week totaling $72 billion.
The MSCI Emerging Markets index dropped 2.4%, flirting with a bear market for the first time since the global financial crisis in 2009.
Gold added 1.4%, after jumping as much as 3.5% to a record $1,780.10 an ounce. Copper, nickel and zinc gained in London.