Updated from 4:04 p.m. EST

Blue chips erased heavy early losses and closed sharply higher Wednesday following a rally in financials, while tech stocks overcame the weight of a weak performance in Apple ( AAPL) to end with gains.

The Dow Jones Industrial Average fell by as many as 326 points during the session, but clawed back and vaulted up 298.98 points, or 2.5%, to 12,270.17.

Among winning components, General Motors ( GM) surged 10.2%, and Citigroup ( C) rose 9%.

The S&P 500 also finished in the black, rising 28.10 points, or 2.14%, to 1338.60. The tech-heavy Nasdaq Composite lagged by comparison, but it still gained 24.14 points, or 1.05%, to 2316.41. A drop in shares of Apple kept the tech side from fully participating in the bounceback.

By going out to the plus side, the major averages snapped a five-session losing streak.

"It clearly doesn't take much to spur the market to jump or fall drastically," said Bill Stone, chief investment strategist with PNC Wealth Management. "While valuation determines long-term performance, we believe the short term continues to be ruled by fear and greed."

Financial stocks soared after reports that New York state insurance regulators met with big banks and brokers to discuss raising capital for embattled bond insurers. The biggest of the group, Ambac Financial ( ABK) and MBIA ( MBI), climbed 71.9% and 32.6%, respectively.

Sector measures reflected the rebound. The Amex Securities Broker/Dealer Index rose 6.9%, the NYSE Financial Sector Index added 4.6%, and the KBW Bank Index was higher by 3.3%.

Among individual names, Bear Stearns ( BSC), E*Trade Financial ( BAC), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) jumped 9% or more.

The rise in financials turned breadth positive for the day. On the New York Stock Exchange 6.63 billion shares changed hands, as advancers topped decliners by a 12-to-5 margin. Volume on the Nasdaq reached 3.57 billion shares, with winners beating losers 3 to 2.

Robert Pavlik, chief investment officer with Oaktree Asset Management, said he wasn't certain the move would last. "A lot of the action is in stocks that have been shorted the most, like financials," he said. "The question now is if the low we saw today will hold. We've been waiting for a trading bottom so more money can come in off the sidelines."

Traders also contended with several disappointing reports from tech names. Following Tuesday's closing bell, Apple offered fiscal second-quarter guidance that was below analysts' expectations. Shares dropped 10.7% to $139.07 despite a banner first quarter for the iPod, Mac and iPhone maker.

Motorola ( MOT) tumbled 18.8% to close at $10.01 after posting a fourth-quarter profit that fell sharply from a year ago. The handset maker also offered first-quarter guidance that was short of expectations.

Among other tech losers, Google ( GOOG), Amazon.com ( AMZN), Broadcom ( BRCM) and SanDisk ( SNDK) were all lower by 5.5% or more.

Texas Instruments ( TXN) was one bright spot for technology after reporting a fourth-quarter profit that rose 13% from a year ago. Results beat the Thomson First Call average estimate for earnings. Shares of TI gained $1.32, or 4.6%, to $30.30.

Also on the bright side, Pfizer ( PFE), ConocoPhillips ( COP), Coach ( COH) and United Technologies ( UTX) exceeded estimates.

After the closing bell, eBay ( EBAY), Capital One Financial ( COF) and Qualcomm ( QCOM) were reporting earnings.

European stocks were hit hard as the European Central Bank declined to follow the Federal Reserve's lead and cut interest rates. Germany's Xetra Dax fell 4.9%, the Paris CAC 40 lost 4.3%, and London's FTSE 100 was lower by 2.3%.

There was some positive news from Asia, as Hong Kong's Hang Seng saw its biggest point gain ever, rising 10.7% after two days of heavy selling. Japan's Nikkei 225 added 2%, and other indices in Australia, India, and Indonesia surged overnight.

On the economic front, Bloomberg reported that Merrill Lynch halved its forecast for U.S. growth and is now expecting that gross domestic product will rise 0.8% for the year.

U.S. Treasury prices reversed lower, having surged early in the session. The 10-year note was down 28/32 in price, pushing the yield to 3.54%. The 30-year bond was off 29/32 in price, yielding 4.25%.

Commodities were retreating. Crude oil slid $2.22 to close at $86.99 a barrel, and gold futures lost $7.20 to end at $883.10 an ounce.