Tuesday's Stocks

[dollardaze]

The Federal Reserve's decision to hold interest rates steady and the diminishing fears about the solvency of AIG helped stocks to rally Tuesday, as investors looked at the positive implications for the economy.

The Dow Jones industrial average gained 1.3% after falling to a low of 10,742.70 before bouncing back. Nasdaq composite also added 1.3% with Standard & Poor's 500 gaining 1.8%.

Shares of AIG tumbled about 50% after the close, on the report that the government may not be rescuing the company. AIG has seen confidence and the price of its stocks plummet while it struggled to raise the cash needed amid the fallout of the credit market.

The positive reaction to the Fed's decision that it would hold the fed funds rate steady at 2% also helped Wall Street on Tuesday. Despite the recent plunge in the price of oil, the Fed also continued to talk about the uncertainty of the outlook on inflation. Some investers were hoping they'd see a cut in the aftermath of the recent fallout of the financial market, with the bankruptcy declaration of Lehman Bros, Bank of America being bought by Merrill Lynch, and firms besides the AIG trying to raise funds. This lack of a cut had initially sparked a sell-off, but then gave way to an advance as the investors then focused on the positive implications.