NEW YORK – U.S. blue-chip stocks rose Monday after reversing direction in the last hour of trade as the flight to safety in the short-term Treasury bills flagged, suggesting concerns over the stability of credit markets were receding.
The Dow Jones industrial average rose 42.27 points, or 0.32 percent, to end at 13,121.35. The Standard & Poor's 500 Index edged down 0.39 of a point, or 0.03 percent, to 1,445.55. But the Nasdaq Composite Index gained 3.56 points, or 0.14 percent, to close at 2,508.59.
U.S. three-month Treasury bill yields fell earlier in the session in their biggest one-day drop since 1987. Later, yields rose as that flight to safety receded.
The Dow average was bolstered by shares of big manufacturers like Caterpillar (CAT) Inc that may benefit from a cut in benchmark interest rates. The broad S&P 500 declined slightly, while the Nasdaq composite index finished a touch higher.
The U.S. Federal Reserve on Friday cut the discount rate it charges on bank loans in a bid to stablize financial markets. The Fed's surprising move followed sharp declines in world stocks over the past month weeks as problems in the risky U.S. subprime mortgage sector spread to other markets.
"The fear of a financial implosion is, I think, gradually fading into the backround," said Michael Metz, chief investment strategist at Oppenheimer & Co.
Caterpillar gained 1.9 percent to $74.05, making it the top positive influence on the Dow. Shares of Honeywell International also gained, ending up 2.5 percent at $55.82, along with Alcoa Inc. (AA), up 3.1 percent at $34.32 on the New York Stock Exchange.
"The view is that the economic expansion is intact," Metz said.
Lowe's Cos helped support the S&P 500 index. The home improvement retailer reported a higher-than-expected profit, sending its shares up 6.1 percent to $28.50.
Jay Finkel, Lord Abbett senior equity trader in Jersey City, New Jersey, said, "Earlier when the market was down, the 3-month Treasury bill was rallying, which is a flight-to-quality situation."
Financial shares pared losses late in the day, after leading the charge lower for stocks around midday.
JP Morgan Chase & Co., down 1.1 percent at $46.49, and Citigroup Inc., down 0.9 percent at $48.39, were among the top drags on the S&P 500 index.
Thornburg MortgageChief Operating Officer Larry Goldstone said there was a crisis in investor confidence in the mortgage sector. Its stock fell 10.2 percent to $13.50.
In other financial news, Countrywide Financial Corp. (CFC) fell 7.6 percent to $19.81 after the stock was downgraded by Keefe, Bruyette & Woods Inc.
Last week Countrywide, the largest U.S. mortgage lender, unexpectedly tapped an entire $11.5 billion credit line to help fund operations.
U.S. Treasury Secretary Henry Paulson is scheduled to meet with Federal Reserve Chairman Ben Bernanke and Senate Banking Committee Chairman Christopher Dodd on Tuesday to discuss the recent volatility in the financial markets, Dodd said.
Volume was moderate on the NYSE, where about 1.54 billion shares changed hands, below last year's estimated daily average of 1.84 billion. On the Nasdaq, about 1.68 billion shares traded, below last year's daily average of 2.02 billion.
Advancers outnumbered decliners by a ratio of 2 to 1 on the NYSE and by about 16 to 15 on the Nasdaq.