NEW YORK – Stocks staged comeback Tuesday, recovering more than half of Monday’s record losses amid widespread hope that a bailout plan for Wall Street will be revived in Congress and in place by week’s end.

The prospects for government intervention to prop up the U.S. financial system continued to dominate traders’ attention Tuesday, although it remained unclear what changes might be necessary to win over House members who surprisingly voted down a rescue package Monday. That in turn sparked a historic market plunge that included a 778-point drop in the Dow Jones Industrial Average, the biggest one-day decline in the blue-chip measure in its 112-year history.

On Tuesday, the Dow got off to a strong start and saw its gains accelerate as the closing bell approached, marking the end of 2008’s third period. The blue-chip measure soared 485.21 points higher, or 4.7 percent, to close at 10850.66, off 4.4 percent for the quarter.

Twenty-nine of its 30 components finished higher, with Caterpillar the only exception, off 0.5 percent.

Traders said that so-called “window dressing,” or last-minute portfolio tweaking by money managers before they send out quarter-end statements to clients, added momentum to the market. So did a rush of buyers attracted by bargains following Monday’s drop, a typical phenomenon after any big market decline.

But above all, the prospect of an unprecedented government intervention in America’s financial markets continued to loom large.

Other market yardsticks posted solid gains Tuesday to close out what was an otherwise dismal quarter. The Nasdaq Composite Index was up 5 percent to end at 2082.33, off 9.2 percent for the quarter. The small-stock Russell 2000 index rose 3.3 percent to close at 679.58, off 1.5 percent for the quarter.

The S&P 500 rose 5.3 percent to 1164.74, off 9 percent for the quarter. The broad measure was boosted Tuesday by a 6.1% gain in energy, which benefited from a resurgence in crude-oil prices. The S&P financials were up 7.1 percent as a group.

Credit markets remained tight but showed some signs of easing. The yield on the three-month Treasury bill rose to 0.88 percent from 0.14 percent late Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was at 3.833 percent, up from 3.58 percent late Monday.

On a more worrisome note, the cost of borrowing dollars overnight in the interbank market world-wide surged following Monday’s bailout rejection in the U.S. House. The move heightened market participants’ concerns about the creditworthiness of counterparties amid a spate of recent bank failures.

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