Stocks ended a volatile session on the positive side Wednesday as energy and construction companies gained and after the president of the Philadelphia Federal Reserve said the central bank could change its interest rate policy in the aftermath of Hurricane Katrina.

The Dow Jones industrial average (search) rose 68.78, or 0.66 percent, to 10,481.60. The Standard & Poor's 500 index (search) rose 11.92, or 0.99 percent, to 1,220.33, and the Nasdaq composite index (search) rose 22.33, or 1.05 percent, to 2,152.09.

Wall Street moved higher after Philadelphia Fed President Anthony Santomero (search) called increasing oil prices a "tax" and said on television that it was too early to say whether the Fed would change its interest rate policy in light of the hurricane's wreckage. Many traders took the comment as a signal that the Fed's year-plus streak of rate hikes might end sooner than expected.

"The president of the Philly Fed is saying the Fed has to adapt to changing circumstances," said Todd Leone, managing director of equity trading at SG Cowen Securities. "With what's going on in New Orleans, I don't think the Fed can raise rates."

Bonds, which had soared all day, rose even higher after Santomero's comments.

Despite Wednesday's rally, major stock indexes suffered losses in August as oil prices climbed. The S&P and the Nasdaq had their biggest declines in four months, falling 1.1 percent and 1.5 percent, respectively. The Dow lost 1.5 percent.

Falling oil prices also helped stocks. After closing at a record high of $69.81 Tuesday, oil settled Wednesday at $68.94, down 32 cents on the New York Mercantile Exchange (search). Oil had climbed as high as $70.65 a barrel in pre-opening overseas trading before slipping after U.S. Energy Secretary Samuel W. Bodman's morning announcement that the government would release oil from the Strategic Petroleum Reserve (search).

The increased supply of crude, though, might not translate to lower gasoline prices due to damage at refineries along the Gulf Coast, traders said.

Shares of Exxon Mobil Corp. (XOM) , ConocoPhillips (COP) and Chevron Corp. (CVX) helped drive the broad Standard & Poor's 500 index higher, while construction-equipment maker Caterpillar Inc. boosted the Dow Jones industrial average.

Caterpillar rose $1.71 to $55.49, while Exxon Mobil shares rose 2.2 percent to $59.90. ConocoPhillips gained 1.5 percent to $65.39 and Chevron Corp. rose almost 2.4 percent to $61.54.

"Demand for certain stocks remains pretty high, and the storm may actually be beneficial for some companies other than energy and oil producers," said Jason Schenker, U.S. economist at Wachovia Corp. in Charlotte, North Carolina.

Construction companies moving higher included Baton Rouge, Louisiana-based Shaw Group Inc. (SGR), up almost 17 percent at $21.10 and McDermott International (MDR), ahead 7.4 percent at $34.55. Fluor Corp. (FLR) added about 5.7 percent to $61.91.

In the wake of the storm, investors also bid up shares of companies that make manufactured housing, including Coachmen Industries Inc. (COA). Coachmen rallied almost 12 percent to $13.47.

Shares of oil field services companies including Ensco International Inc. (ESV) , Rowan Cos. Inc. (RDC) and Todco (THE), rose. Ensco gained 3.2 percent to $40.86, while Rowan advanced 5 percent to $37.20. Todco shares climbed 6.9 percent to $34.

Declining shares included insurers such as American International Group Inc. (AIG), which are expected to be hit by heavy storm damage claims, and consumer-focused companies including Wal-Mart Stores Inc. (WMT) and Pepsico Inc (PEP).

In a further economic hit, the National Association of Purchasing Management-Chicago (search) business barometer fell to 49.2 in August, down from 63.5 in July. Any number below 50 indicates economic contraction. Economists polled by Reuters had expected a reading above 50.

Declining insurers included AIG, down 1.8 percent to $58.10 on the New York Stock Exchange, and Allstate Corp. (ALL), off 1.6 percent to $55.73, also on the NYSE. Estimates have put insured losses from Katrina as high as $25 billion.

Boeing Co. (BA) rose 28 cents to $67.02 even after Machinists union leaders advised more than 18,000 workers to reject Boeing Co.'s final contract offer and strike. A top Boeing executive said a strike would be devastating to the company's prospects. Union members vote on the three-year offer Thursday, with the current contract set to expire Friday.

Luxury retailer Tiffany & Co. (TIF) rose $4.11 to $37.42 after its earnings climbed 53 percent in the second quarter due to higher sales and a lower tax rate, and the company boosted profit guidance for the full year. As a result of the American Jobs Creation Act of 2004, the effective tax rate was lower in the latest quarter than in the prior year, and boosted profit by 5 cents per share. The company also forecasts full-year sales growth of 8 percent to 10 percent.

Trading was heavy on the New York Stock Exchange where gainers beat decliners by 3 to 1. About 1.8 billion shares were traded, above the 1.46 billion average for last year.

On Nasdaq, rising stocks outnumbered decliners by about 7 to 3. Some 1.7 billion shares changed hands, below the 1.8 billion daily average.

The Russell 2000 index of smaller companies rose 12.75, or 1.95 percent, to 666.51.

Overseas, Japan's Nikkei stock average fell 0.32 percent. Britain's FTSE 100 rose 0.78 percent, Germany's DAX index was up 0.79 percent, and France's CAC-40 was up 0.98 percent.

Reuters and the Associated Press contributed to this report.