Updated from 1:04 p.m. EDT

After disappointing earnings from technology and financial firms prompted a skittish start for U.S. stocks Tuesday, the major indices bounced up to skip along the baseline as a slide in oil prices and a rally in the dollar helped to reduce investor pessimism.

The

Dow Jones Industrial Average

was up 39 points at 11,507, and the

S&P 500

rose 2 points to 1262. The

Nasdaq

was 2 points lower at 2277.

After Monday's close,

Apple

(AAPL) - Get Report

delivered

third-quarter earnings that exceeded expectations, but it guided below the targets for the current quarter. Shares were recently down 6.2%.

Texas Instruments

(TXN) - Get Report

, which missed on profits and provided a

disappointing outlook

, represented another technology flop, and its shares were sinking more than 16%.

Investors had been anticipating that relief from the government stimulus package and action by the

Federal Reserve

would prop up cyclical and technology companies, said Matthew Smith, vice president and portfolio manager for Smith Affiliated Capital. "That just hasn't transpired."

"If you take technology, it's a pulse of the market going forward. It's basically suggesting that you're still in the early stages of a recession," said Smith.

Putting pressure on both financials and the Dow was credit card company

American Express

(AXP) - Get Report

, which

fell short of estimates

and offered cautious guidance for 2008. Its stock was lately down nearly 10%.

Fellow Dow member

Merck

(MRK) - Get Report

delivered an earnings beat, but

didn't offer forward projections

after discouraging test results emerged for the cholesterol drug Vytorin, a joint venture between Merck and

Schering-Plough

(SGP)

. Merck shares stumbled 10%.

As the new day dawned, several more companies reported quarterly results. In financial services,

Wachovia

(WB) - Get Report

dropped an $8.9 billion second-quarter loss on shareholders,

missing estimates

. The bank also said it would be cutting 6,350 jobs, reducing its dividend and abandoning its wholesale mortgage business. After a sharp morning selloff, shares were recently up 6.8% after the company said it was not planning to raise new capital through a share offering.

Despite also showing credit-related pain in their earnings statements, regional banks

Fifth Third

(FITB) - Get Report

and

SunTrust

(STI) - Get Report

were trading higher, as well.

Money-transfer company

Western Union

(WU) - Get Report

was also rising after posting an increase in profits and raising forward estimates. Shares climbed 8.1%.

Bond insurer

Assured Guaranty

(AGO) - Get Report

wasn't faring so well, falling 45% after Moody's announced it may downgrade the company's triple-A credit rating.

"You're in a bear-market rally now," Smith said. He said that recent consolidation after last week's rally probably will be followed by another leg down.

"The question for Wachovia is ... how bad can it get," said Smith. He said that on a macroeconomic level, the company faces headwinds from Fed governors that are ready to raise rates based on backward-looking inflation indicators, whereas tough earnings are looking three months ahead.

Of the broader turmoil in the sector, Smith said there's a distinction must be made between large-cap banks and the regionals, which some investors believe aren't as capable of dealing with the ongoing financial crisis as their bigger counterparts.

Speaking in Washington, D.C., on the state of the financial markets, Treasury Secretary Henry Paulson said mortgage companies

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

are crucial to the effort to recover from credit crunch-related woes. He also said he was confident that Congress would approve his relief plan for the shaky government-sponsored entities.

Earlier, the Office of Federal Housing Enterprise Oversight had said that Fannie and Freddie will have to write down more assets thanks to their exposure to subprime and alt-A mortgages. Fannie shares got smacked for 14% of their value, and Freddie was shedding 8.8%.

Also out were statements from industrial leaders and Dow stocks

Caterpillar

(CAT) - Get Report

and

DuPont

(DD) - Get Report

, both of which exceeded expectations.

Meanwhile, shipping firm

UPS

(UPS) - Get Report

fell short of analyst estimates, and airlines

UAL

(UAUA)

and

US Airways

(LCC)

delivered losses. All three firms have been hampered by rising fuel costs.

UAL said its airline, United, had extended an agreement with partners Chase Bank and Paymentech that would enhance its liquidity level by about $1.2 billion. Shares of the company were skyrocketing 47%. US Airways marked similar gains, and UPS was also trading higher.

On the other side of the energy boom,

Baker Hughes

(BHI)

trumped forecasts, while fellow energy-patch denizen

Halliburton

(HAL) - Get Report

delivered in-line earnings on record revenue and offered a rosy outlook.

XTO

(XTO)

likewise exceeded expectations. Baker Hughes rose, but Halliburton and XTO were trading lower as oil prices declined.

Wireless telecom

Vodafone

(VOD) - Get Report

was slumping 14% after it met earnings expectations but

warned that revenue would be weak

because of the slowing economy.

UnitedHealth

(UNH) - Get Report

reported a 73% year-over-year decline in second-quarter income. Excluding charges, however, the company topped analyst estimates. Shares were up 8.1%.

In commodities, crude oil was losing $4.18 at $126.86 a barrel, and gold fell $15.70 to close at $948. Hurricane Dolly, which was causing concerns of supply disruptions off the Gulf Coast Monday, looked as though its path would cut just south of the majority of the drilling area.

Of the broader economy,

Bloomberg

reported this morning that economists at Merrill Lynch reduced their forecasts for U.S. growth. The new figures, described as "adjusting for the new reality," foretell growth of 0.5% in 2009, down from a previous look of 1.5% growth.

The home price index from the Office of Federal Housing and Oversight slipped 0.3% in May vs. April. Prices fell 4.8% year over year for May. The figures were better than expectations for a 0.8% decline.

Meanwhile, Charles Plosser, president of the Philadelphia Fed, said in a speech this morning that the central bank should reverse its rate-cutting ways, for the moment sparking a reversal in the bond market.

As for Treasuries, the 10-year note was slipping 17/32 to yield 4.11%, and the 30-year was down 25/32, yielding 4.67%. The dollar was rising against the euro, the pound and the yen.

Overseas markets were mixed, with London's FTSE slipping and Frankfurt's DAX climbing. The Nikkei in Japan rose, and the Hang Seng in Hong Kong was down fractionally.