Stocks rally to close higher in volatile trading

— -- Stocks ended another tumultuous day with a big gain Tuesday, partly recovering from its worst sell-off in years after the Federal Reserve said it was keeping interest rates steady.

Trading was volatile as investors try to determine just how precarious the nation's financial situation is. The Fed tried to sooth fears of a worsening financial crisis even as the market waited to learn the fate of troubled insurer American International Group.

The Fed signaled that while there are growing strains in the financial markets, it expects its earlier rate cuts and efforts to boost liquidity in the banking sector to help the economy.

Worries about the future of AIG weighed on the market, pushing stocks lower in early trading. But positives such as plummeting oil prices served as an offset and helped the market recover from its lows.

A day after its worst loss in more than six years, the Dow Jones industrial average rose 141.51, or 1.3%, to 11,059.02 despite a $1.01, or 21%, decline of AIG to $3.75.

The Standard & Poor's 500 index rose 20.90, or 1.8%, to 1,213.60, and the Nasdaq composite index rose 27.99, or 1.3%, to 2,207.90.

Investors are almost paralyzed by the constantly shifting environment rife with uncertainty, says Michael Farr of Farr Miller & Washington. "Wall Street is hit with such a storm of unexpected information it's difficult to process the ramifications more or less figure out how to react," he says.

Wall Street continues to get pummeled with new information pertaining to:

•AIG. Rampant speculation gripped trading on the stock as traders tried to assess how much the insurer needs to remain solvent or whether or not the government will step in to shore up its finances. "Now we're looking at AIG trying to figure out what happens if AIG fails," Farr says.

•Oil prices. The price of a barrel of crude continued its precipitous decline, falling $4.56 to $91.15. Oil prices continue to fall as the worldwide economy cools and cuts demand for energy and commodities. Jim Paulsen at Wells Capital Management says plunging oil prices is a bright spot and could be more of a direct benefit than the failure of Lehman is a negative.