Updated from 10:51 a.m. EDT

Stocks in New York swung from early losses into positive territory Tuesday as investors reevaluated the tenuous future of pummeled insurance company

AIG

(AIG) - Get Report

.

The

Dow Jones Industrial Average

was up 92.90 points to 11,010, and the

S&P 500

added 8.96 points to 1,202. The

Nasdaq

gained 11.58 points to 2,191.

On Monday, brokerage

Lehman Brothers

(LEH)

filed for bankruptcy protection after failing to find a partner willing to take on its subprime exposure. Lehman's bankruptcy is the largest in U.S. history in terms of assets held before the filing. Also struggling with bad assets and fears that it may go the way of Lehman,

Merrill Lynch

(MER)

agreed to be bought by

Bank of America

(BAC) - Get Report

for $50 billion.

AIG

, whose balance sheet is crippled by its sale of insurance on subprime-related securities, late Monday suffered a downgrade of its credit ratings by 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

(FNM)

,

Freddie Mac

(FRE)

, Lehman, Merrill 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."

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.

Barclays

(BCS) - Get Report

, meanwhile, said it may buy certain of Lehman's assets after having backed away from an outright acquisition.

As financial firms struggled to find new capital and hold on to 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, news wasn't much sunnier. Electronics retailer

Best Buy

(BBY) - Get Report

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

second-quarter profit declined

19% from a year ago.

Further reflecting a souring tech market, PC maker

Dell

(DELL) - Get Report

issued a warning

that it foresees decreased demand for the current quarter and expects to incur costs as it adjusts to the tough environment.

In the realm of economic data, the Federal Reserve is expected to decide whether it will cut its target interest rate. In the wake of recent turmoil, Fed funds futures are priced for 100% odds of a 25 basis-point cut and 20% odds of a 50 basis-point cut.

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 was losing $3.30 to $92.41 a barrel. Gold was falling $1.70 to $785.30 an ounce.

Longer-dated U.S. Treasury securities were climbing in price. The 10-year note was up 20/32 to yield 3.31%, and the 30-year was up 1-10/32, yielding 3.95%. The dollar was falling vs. the yen and up slightly against the euro and pound.

Abroad, markets such as the FTSE in London and the Dax in Frankfurt were trading lower. The Nikkei in Japan and the Hang Seng in Hong Kong closed with losses.