Updated from 4:09 p.m. EDT

Stocks on Wall Street finished a see-saw day with modest losses Tuesday after the Treasury Department outlined a plan to invest $250 billion in U.S. banks.

The Dow Jones Industrial Average, which traded up more than 400 points in the morning and down nearly 300 points in the afternoon, finished with a loss of 76.62 points, or 0.8%, at 9310.99. The S&P 500 closed down 5.34 points, or 0.5%, at 998.01. The Nasdaq gave back 65.24 points, or 3.5%, at 1779.01.

Ahead of Tuesday's session, Treasury Secretary Henry Paulson said his agency would dedicate $250 billion of the $700 billion bailout package to buying equity positions in U.S. banks.

Of that $250 billion, the government would use about $125 billion to buy preferred shares in Goldman Sachs ( GS), Morgan Stanley ( MS), JPMorgan Chase ( JPM) , Bank of America ( BAC), Merrill Lynch ( MER) , Citigroup ( C), Wells Fargo ( WFC), Bank of New York Mellon ( BK) and State Street ( STT), The Wall Street Journal reported.

Speaking in Washington Tuesday morning, Paulson said he dislikes government ownership in U.S. financial firms but the equity investment will help unfreeze liquidity markets and alleviate the crisis. Paulson stressed that the capital infusions should be circulated rather than kept by banks.

Federal Reserve Chairman Ben Bernanke praised Paulson's plan, and FDIC Chair Sheila Bair said that additional insurance of deposits in banks would also boost confidence in the financial system.

The financial sector was broadly rising, as the Financial Select Sector SPDR ( XLF), which tracks the space, gained 6% to $17.25. The AmEx Securities Broker/Dealer Index jumped 2.8% to 107.44, and the KBW Bank Index added 12% to 62.30.

Action in the money markets suggests the international relief effort may be gaining traction against the credit crunch. Bloomberg reported that three-month dollar Libor, a measure of the rate banks charge one another for large loans, declined 12 basis points to 4.64%. The overnight rate lost 29 basis points to 2.18%.

"We don't want to sound too Pollyanna-ish, but it is clear from the events of the past week that the body politic of the developed economies has been shaken to the core and will now do whatever is necessary to maintain the operation of the system. The daily threat of institutional failure has, therefore, now receded greatly," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in an email.

Shepherdson also wrote that owners of equities will still suffer as a result of the financial crisis. "The gigantic loss of wealth will reverberate throughout the real economy for years to come, though the biggest hit will come in the near term," he wrote. He said that the consumer still poses a large downside risk for the U.S. economy.

Goldman Sachs was undertaking some of its own maneuvers, seeking a New York state charter for its new banking subsidiary. Goldman, along with Morgan Stanley, became a bank holding company on Sept. 21. Many major commercial banks apply for charters from federal rather than state regulators. Goldman gained 11% to $122.90, and Morgan Stanley jumped 21% to $21.94.

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Elsewhere in the financials, Hank Greenberg, former CEO of AIG ( AIG), was preparing a proposal to keep the company from being taken over by the government. AIG is rushing to pay back a bridge loan from the government to avoid being seized. AIG shares added 9% to $2.80.

Spanish bank Banco Santander ( STD), meanwhile, confirmed it was expanding on its existing stake to buy the entirety of Sovereign Bancorp ( SOV) for $1.9 billion. Santander was unchanged at $14.50, and Sovereign ticked down 6.3% to $3.45.

"The market is finding a bottom. It's finding one. Whether Thursday/Friday was the bottom or whether we're going to see another bottom on Wednesday, it really doesn't matter," said Jason Pride, director of research at Haverford Investments. He said the market has experienced a great deal of the downside and is now beginning to resolve itself. "That doesn't mean we're going to propel into the next great market immediately ... but it means that we're working things out now."

There isn't another shoe to drop because of the broader economy, said Pride. He said that recent turmoil in the markets was accounting for the economic impact of the credit crisis. He said some areas of the market, including lower-tier financials, could continue to suffer. "But we're in the process of fixing things and moving out of it," he said.

In the technology space, Internet concerns Yahoo! ( YHOO) and Google ( GOOG) were working with the Justice Department to try to stave off an antitrust case against a proposed ad-sharing deal between the two companies. Yahoo! gave back 6.2% to $12.65, and Google shed 4.8% to $362.71.

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In other legal news, Discover Financial ( DFS) settled an antitrust lawsuit against MasterCard ( MA) and Visa ( V). Shares of Discover were rising on the news. Discover tacked on 11% to $11.76. Visa fell 2.1% to $57.61, and MasterCard was roughly flat at $174.07.

Meanwhile, Boeing ( BA) looked headed for trouble as negotiations with its machinist union broke down. Boeing's machinists have been on strike for five weeks. The stock lost 4.3% to $45.07.

As for corporate earnings, consumer-products developer Johnson & Johnson reported third-quarter earnings that rose year over year and topped estimates. Shares added 2.1% to $64.

PepsiCo ( PEP) wasn't as rosy, announcing it would reduce its workforce and reporting falling profit. The stock dropped 12% to $54.40.

In the realm of commodities, crude oil shed $2.56 to close at $78.63 a barrel. Gold was unchanged at $839.50 an ounce.

Longer-dated U.S. Treasury securities were declining in price. The 10-year note was down 24/32, yielding 4.07%. The 30-year was losing 2-12/32 to yield 4.27%. The dollar was rallying vs. the yen but falling against the euro and pound.

Abroad, European indices including the FTSE in London and the DAX in Germany were trading higher. Looking at Asian markets , Japan's Nikkei closed 14.2% higher, a one-day record, and Hong Kong's Hang Seng closed with gains.

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