Bulls Fiddle as Junk Bonds Burn

The possibility that some of the largest leveraged buyouts ever may struggle didn't faze investors Wednesday as many seem to reflexively buy dips after big drops in the stock market.

After Tuesday's rout, investors pushed the three major indices back up, focusing on new deals like a potential link-up of Alcan(AL) with Rio Tinto(RTP), rather than those already announced and potentially facing setbacks like the $25 billion buyout of Sallie Mae(SLM), among others.

Perhaps the biggest relief for investors was the day's respite from a poor start to earnings season. After the closing bell, Genentech(DNA) and Yum! Brands (YUM) both beat expectations.

"We're getting an attempt at stabilization," says Randy Diamond, a trader at Miller Tabak. "There's more buying on the dip as the bulls have been trained to do."

The Dow Jones Industrial Average added 0.6%, retracing just about half of Tuesday's decline, to close at 13,577.87. The S&P 500 added 0.6% as well to close at 1518.76, and the Nasdaq Composite finished the day up 0.5% closing at 2651.79.

Alcan gained 1.7% and Rio Tinto was up 2.7% on their possible link-up, while investors cheered a confirmed metals sector tie up as Chaparral Steel(CHAP) agreed to be acquired by Gerdau Ameristeel(GNA).

Other small deals sprinkled the day's news flow, but Sallie Mae slid 10% on news from the student loan provider that its buyers J.C. Flowers & Co., Bank of America and JPMorganChase informed the company that pending legislation "could result in a failure of the conditions to the closing of the merger to be satisfied," according to a Sallie Mae press release. Congress passed legislation to cut $19 billion in government student loan subsidies and use the savings to make more student aid grants and to cut the interest rate on student loans.