Updated from 4:07 p.m. EDT

Stocks in New York closed with strong gains Tuesday, recouping some of the heavy losses suffered in the previous session's massive selloff.

The major indices spent the entire day in rally mode Tuesday, adding to their early gains as the day progressed. The Dow Jones Industrial Average jumped 485.21 points, or 4.7%, at 10,850.66, and the S&P 500 added 58.34 points, or 5.3%, to 1164.73. The Nasdaq climbed 98.6 points, or 5%, to 2082.33.

On Monday, stocks got crushed after the House of Representatives voted down the Treasury Department's $700 billion financial-sector stabilization plan. The Dow plunged 777 points, or 7%, its worst single-day loss ever in terms of points and its worst percentage loss since Sept. 17, 2001. The S&P 500 gave up 8.8%, and the Nasdaq fell 9.1%.

Traders had anticipated passage of the Treasury's program, which would provide liquidity in installments to financial firms in exchange for mortgage-backed securities and other hard-to-value assets. Lawmakers are working to put together another proposal and quell the market's anxiety.

Phil Roth, chief technical analyst at Miller Tabak, had expected an upside open following Monday's big drop. He pointed out that the financial sector, which has been at the center of market turmoil, held lows established on Sept. 18. Those lows were higher than the ones reached in mid-July, which is encouraging, said Roth. Nevertheless, "I think we've got a long way to go before we can say we have a bottom for a whole bull market," he said.

"Once we get the stupid bill passed ... the market will have a little hoopla. And then, people will say, 'Oh my God, we're in a recession.' That's the next shoe to drop, but that will take a while." Roth said that a lack of investment buying is the biggest problem the market faces, and long-term interest rates need to decline before stocks enter a bull market.

"There seemed to be a real disconnect between the perceived need that the market felt and the lack of understanding and resentment on the part of the general public, and so the market was just completely surprised when the package fell through," said Alan Gayle, senior investment strategist at RidgeWorth Financial.

Gayle said that the bill was designed to provide stability to financial markets, which is different from helping the economy as a whole. He said that after nine consecutive months of job losses, consumers are likely to remain stressed, even with successful passage of a stabilization bill. That consumer frustration, he said, was probably an important obstacle to the initial proposal.

"There is need for a package," said Gayle. "It's critical that we get orderly pricing on the distressed assets so that the market can move on." He said the extant plan was a good one, but that politics stymied the initiative.

Several government agencies made additional efforts to stem the impact of the credit crisis. Citing people familiar with the matter, Bloomberg reported that the Securities and Exchange Commission and the Financial Accounting Standards Board may clarify fair-value accounting rules that guide firms in assessing the value of their assets.

In other regulatory actions, the Federal Deposit Insurance Corp. said that a temporary increase in government insurance on deposits would help alleviate bank customers' increased concerns about the safety of their funds.

Fitch Ratings said it may cut its credit rating on Citigroup ( C - Get Report) following the bank's announcement that it would buy Wachovia ( WB - Get Report) and take on $53 billion in Wachovia debt. Citi shares nonetheless gained 16% to $20.51, and Wachovia rocketed 89% to $3.48 after saying it's well-positioned to continue doing business.

A report in the Financial Times Monday indicated that Goldman Sachs ( GS - Get Report), which amid the credit crisis agreed along with Morgan Stanley ( MS - Get Report) to become a bank holding company instead of an investment bank, was looking to buy as much as $50 billion in assets from other banks. Goldman gained 6.1% to $128.

As the credit crisis continued to manifest itself in Europe, the governments of Belgium, France and Luxemburg said they would allocate $9.24 billion in emergency funding to Belgian lending firm Dexia. Dexia's Chairman, Pierre Richard, resigned along with CEO Axel Miller.

Outside the financials, pharmaceutical concern Pfizer ( PFE - Get Report) announced it will stop making medicine to treat heart disease. The stock climbed 4.5% to $18.44.

In the technology space, Microsoft ( MSFT - Get Report) CEO Steve Ballmer warned that all companies were vulnerable to the global economic crisis. He predicted a slowdown in spending by businesses as well as consumers. Microsoft added 6.7% to $26.69.

Shifting to economic data, the Case-Shiller home-price index fell 16.35% year over year for July, a slightly wider decline than the 16% expected by economists.

The Chicago Purchasing Managers Association reported that its September manufacturing index came in at 56.7, above economists' estimates for a read of 54 but down from 57.9 in August. The Conference Board's consumer confidence index was at 59.8, well ahead of analysts' forecasts.

In commodities, crude oil advanced $4.27 to settle at $100.64 a barrel. Gold lost $13.60 to $880.80 an ounce.

Longer-dated U.S. Treasury securities were falling in price. The 10-year was down 2-4/32 to yield 3.83%, and the 30-year was giving back 3-16/32, yielding 4.31%. The dollar was rising vs. its major foreign competitors.

Abroad, markets were mixed. The FTSE in London and the Dax in Frankfurt were ticking higher. The Hang Seng in Hong Kong closed with gains, while Japan's Nikkei ended on the downside.

Where will the Dow Jones Industrial Average stand at the end of 2008?

Above 10,000
7000 to 8000
Below 7000