Late Rally Sends Stocks to Higher Close

Updated from 4:24 p.m. EDT

Stocks in the U.S. used an afternoon advance to close decidedly to the upside Tuesday, overcoming early sluggishness and then reaching their best levels in the final hour of trading.

The Dow Jones Industrial Average rose 152.25 points, or 1.4%, to 11,384.21, and the S&P 500 added 21.39 points, or 1.7%, at 1273.70. The Nasdaq gained 51.12 points, or 2.3%, to 2294.44.

Overall, financial stocks recovered after the previous day's slide. The NYSE Financial Sector index was up 3.8%, and the KBW Bank Index was better by 5.4%. Dow components AIG (AIG), Bank of America (BAC) and Citigroup (C) all gained ground.

Last time out, the U.S. market sold off on concerns about mortgage buyers Fannie Mae (FNM) and Freddie Mac (FRE). The pair was among the day's biggest losers, falling more than 15% after Lehman Brothers predicted they would need fresh capital.

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This time though, the stocks rose after the head of their regulator, the Office of Federal Housing Enterprise Oversight, said that wouldn't necessarily be the case for the government-sponsored companies. Both climbed more than 10%.

Mortgage lender IndyMac (IMB), however, was taken apart, sinking 38% to 44 cents. The steep drop came after it said it would stop most new lending, cut more than 50% of its workers and continue implementing a new business plan after regulators indicated it was no longer well-capitalized.

Before U.S. trading began, liquidity concerns weighed on investors overseas as wealth managers UBS (UBS) and Deutsche Bank (DB) aided a considerable slump in the European exchanges.