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Updated from 3:53 p.m. EDT

After a day of wild mood swings, stocks in New York finished Tuesday with solid gains following reports that woebegone insurer



may gain support from the

Federal Reserve

as it struggles to raise capital.


Dow Jones Industrial Average

ended up 145.51 points, or 1.3%, at 11,059.02, and the

S&P 500

gained 20.9 points, or 1.8%, to 1213.60. The


climbed 27.99 points, or 1.3%, to 2207.90.

The prospect of a loan package from the Fed for the ailing AIG, believed by some to be essential to the continued function of U.S. financial markets, helped buoy the indices. Citing a person familiar with the negotiations,


reported that the central bank is looking to provide AIG with a loan package to support it as it faces a crippling liquidity crunch.

Separately, former AIG CEO Hank Greenberg looked to be attempting to take control of his former company.

C.V. Starr

, Greenberg's current company, said in a regulatory filing that it would pursue strategic options including a purchase of AIG's private assets, taking the company private, or initiating a proxy battle to buy it.

Earlier, the markets took a brief dive after the Fed's board of governors decided to

keep its target interest rate at 2%

. In a statement accompanying the decision, the Federal Open Market Committee said that economic growth has slowed and that it continues to monitor credit-market conditions.

After brokerage

Lehman Brothers


filed for bankruptcy protection on Monday, traders shifted their focus to AIG, whose balance sheet is hobbled by its sale of insurance on subprime-related securities. Late Monday, the firm suffered downgrades of its credit ratings at S&P, Moody's and Fitch.

"This is probably the greatest financial crisis since the Great Depression," said Brian Gendreau, investment strategist at ING Investment Management. He said that, as

Fannie Mae



Freddie Mac


, Lehman,

Merrill Lynch


and now AIG are in the hunt for capital, and as global growth slows, the situation requires a strong response from the Federal Reserve. "We're in deep gravel here," he said. "This is a once-in-a-generation, once-in-a-two-generation event."

"Ultimately, AIG will work out," said Neil Hennessy, manager at Hennessy Funds. He said that many of AIG's businesses are solid, but insufficiently liquid. As the company formulates a plan to raise capital, the situation will prove favorable for other firms that want to buy solid businesses at reduced prices, he said. "It's just going to take a little doing," he said.

AIG shares finished the day down 16% at $4 after losing as much as 45% earlier. The stock traded on enormous volume; investors traded 1.1 billion shares of the company, compared with an average daily volume of 60 million.

Hennessy said the broader economic situation resembles that of the early 1990s, when a financial crisis claimed hundreds of banks and savings and loans. "We're stomaching the same thing now," he said. He also pointed out that in this environment the market is overreacting to each new headline.

"As much as everyone's gut is tightening and we all look like we've got abs, this is just like a bad kidney stone," he said. "It will pass; it's just going to hurt."

Elsewhere, Barclays said it was in discussions to buy certain of Lehman's assets. The British bank had previously refused an outright acquisition of the company. Lehman shares stopped trading on the


around 3:17 p.m. EDT. Before it stopped trading, the stock was down 11% at 19 cents.

Bill Stone, chief investment strategist at PNC Wealth Management, said that less worry exists in the markets if it appears someone can pick up remaining assets after a firm goes bankrupt. He also said that a Barclays purchase of Lehman assets improve the prospects for Lehman's creditors. "At least somebody's finding value in the operations," he said.

A lack of information is the main source of pessimism around AIG and the financial sector, said Bill Stone, chief investment strategist at PNC. He said the company is clearly under a great deal of stress. "We're watching just to see some news."

Ahead of Tuesday's trading, investment bank

Goldman Sachs

reported a 71% drop in third-quarter profit but it still beat Wall Street earnings estimates. During its earnings call, Goldman said that AIG's precarious situation is making it more cautious. The company also said it did not intend to merge with a commercial bank. Shares declined 1.1% to $134.04.

"Goldman Sachs' number didn't calm people down necessarily, but ... it wasn't a disaster," said Stone. He said investors are questioning the business model of standalone brokerages now that Bear Stearns, Lehman and Merrill have either gone bankrupt or merged with steadier partners.

As financial firms struggled to find new capital and preserve their remaining cash, the cost of overnight borrowing doubled from 3.33% to 6.44%, its highest rate since 2001.

To help cope with the buckling financial system, the Federal Reserve allocated

$50 billion

to an overnight repurchasing agreement for the money markets. The liquidity injection comes on top of a $20 billion boost already scheduled and is designed to prop up firms as they deal with mounting credit woes.

Outside the financials space, electronics retailer

Best Buy


, however, fell short of Wall Street's projections as its fiscal

second-quarter profit declined

19% from a year ago. The stock fell 2.9% to $42.43.

Further reflecting a souring tech market, PC maker



issued a warning

that it foresees decreased demand for the current quarter and expects to incur costs as it adjusts to the tough environment. Dell shares slipped 11% to $16.01.

In the realm of economic data, the Bureau of Labor Statistics reported that consumer prices fell 0.1% for August, down from a 0.8% increase in July and in line with economists' expectations. The core rate of price increases came in at 0.2%, down slightly from the previous month.

Shifting to commodities, crude oil lost $4.56 to settle at $91.15 a barrel. Gold finished unchanged in price at $780.50 an ounce.

Longer-dated U.S. Treasury securities were lower. The 10-year note shed 26/32 to yield 3.48%, and the 30-year dropped 1-2/32, yielding 4.08%. The dollar was falling vs. the yen and gaining on the euro and pound.

Abroad, indices such as the FTSE in London and the Dax in Frankfurt mostly traded lower.