Stocks Erase Worst of Losses

Despite the recovery, breadth remained poor. On the New York Stock Exchange 5.91 billion shares changed hands. Decliners topped advancers by a 2-to-1 margin. Volume on the Nasdaq reached 3.29 billion shares, with losers outpacing winners nearly 3 to 2.

One of the major headlines was Countrywide (CFC Quote - Cramer on CFC - Stock Picks), whose shares plummeted 11% after the lender said it would borrow $11.5 billion from its credit line in order to fund new loans. Following the news, both Fitch Ratings and Moody's Investors Service downgraded Countrywide's and other lenders' debt ratings.

However, buyers stepped in to prop up the broader financial sector. Among the best gainers, Bear Stearns (BSC Quote - Cramer on BSC - Stock Picks) surged 12.9%, Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) rose 6.2%, JPMorgan Chase (JPM Quote - Cramer on JPM - Stock Picks) gained 5.7%, and Citigroup (C Quote - Cramer on C - Stock Picks) rose 4.3%.

"The financials have begun to improve, and that was certainly encouraging," said Larry Wachtel, senior market analyst with Wachovia Securities. "We had all the makings of a bottom. When we have this intense fear among traders, the market and financials can turn at any time."

On Wednesday, investors continued to fret about the extent and impact of the credit market crisis on corporate earnings and the economy. Countrywide shares dumped 13%, and KKR Financial Holdings (KFN Quote - Cramer on KFN - Stock Picks) tanked 31.1%.

Last time out, the Dow plunged 167.45 points, or 1.29%, to 12,861.47, the first time the index has closed below 13,000 since April. The S&P lost 19.84 points, or 1.39%, to 1406.70, putting it in negative territory for the year. The Nasdaq slid 40.29 points, or 1.61%, to 2458.83.

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