THE DAY AFTER

NEW YORK

Wall Street snapped back Tuesday after its biggest sell-off in years amid growing expectations that lawmakers will salvage a $700 billion rescue plan for the financial sector. But the seized-up credit markets where businesses turn to raise money showed no sign of relief.

The recovery in stocks wasn’t unexpected, because carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed. Without a bailout plan in place to absorb soured mortgage debt and other bad loans from battered banks, investors are left wondering what might restore confidence in lending.

Major stock indexes were almost a sideshow during the session, with the credit markets as the main event. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.

Traders on the floor of the New York Stock Exchange, still stunned from Monday’s 778-point rout in the Dow Jones Industrial Average, warned that the government needs to approve a plan that will sweep away the fears that hobbled the credit markets. While U.S. political leaders have vowed to revisit the issue, the House isn’t slated to meet again until Thursday.

The Dow rose 485.21, or 4.68 percent, to 10,850.66 after falling nearly 7 percent on Monday to its lowest close in nearly three years. It was the largest point drop and 17th-largest percentage drop in the blue-chip index. The percentage decline was far less severe than the 20-plus-percent drops seen in the stock market crash of October 1987 and before the Great Depression.

Broader stock indicators also bounced higher. The Standard & Poor’s 500 Index recovered 58.35, or 5.27 percent, to 1,164.74, and the Nasdaq Composite Index rose 98.60, or 4.97 percent, to 2,082.33.

The S&P fell 8.79 percent Monday, while the Nasdaq lost 9.14 percent.

The yield on the three-month Treasury bill rose Tuesday to 0.89 percent from 0.14 percent late Monday. The yield fell Monday as investors clamored for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.83 percent from 3.58 percent late Monday. The dollar rose against other major currencies and gold prices advanced.

While investors focused on what might come from Washington this week, Wall Street was cheered by several economic readings.

A private research group reported that consumer confidence rose unexpectedly in September. The Conference Board said Tuesday its Consumer Confidence Index rose to 59.8 from a revised 58.5 in August; Wall Street had expected a reading of 55.5, according to Thomson/IFR. The reading, which doesn’t reflect attitudes after Monday’s steep stock market sell-off, remains near a 16-year low.

The Chicago Purchasing Managers’ index, which measures business conditions across Illinois, Michigan and Indiana, came in at 56.7 compared with 57.9 in August - a second straight month of a strong reading.

However, a closely watched index released Tuesday showed home prices tumbling by the sharpest annual rate ever in July, and though the monthly rate of decline is slowing, there is no turnaround in sight.

The Standard & Poor’s/Case-Shiller 20-city housing index fell a record 16.3 percent in July from the year-ago month, the largest drop since its inception in 2000. The 10-city index plunged 17.5 percent, its biggest decline in its 21-year history.

Prices in the 20-city index have plummeted nearly 20 percent since peaking in July 2006. The 10-city index has fallen more than 21 percent since its peak in June 2006.

No city in the Case-Shiller 20-city index saw annual price gains in July — for the fourth straight month.