Dow's 2nd best day ever

NEW YORK (CNNMoney.com) -- The Dow rallied as much as 906 points during Tuesday's session, as investors dove back into stocks near the end of one of the worst months in Wall Street history.

According to early tallies, the Dow Jones industrial average (INDU) added 888 points after having risen as much as 906 points earlier. It was the Dow's second-biggest one-day point gain ever, following a 936-point rally two weeks ago. The advance of 10.9% was the sixth-biggest ever.

The Standard & Poor's 500 (SPX) index gained 10.8% and the Nasdaq composite (COMP) added 9.5%.

The broad advance occurred as the two-day Federal Reserve meeting got underway, with a decision on interest rates expected Wednesday afternoon. Policymakers are widely expected to cut a key short-term interest rate.

Stocks ended Monday's session at the worst levels in more than five years, with the major gauges off over 25% in October alone. Global markets have fallen too, as investors worldwide have sought to pull money out of stocks amid the credit crisis and weak economy.

After such a selloff, U.S. and global markets bounced back Tuesday. Wall Street briefly retreated in the midmorning after a report showed consumer confidence is at an all-time low, but investors recharged later in the session.

The rally was across-the-board with all 30 Dow components gaining, as investors decided the selling had gotten to be too much. Last week, the CBOE Volatility (VIX) index, or the VIX, hit an all-time high just below 90. And record amounts of cash remain in money-market funds.

"When you look at this in terms of valuation, volatility and investor sentiment, everything portends that a bottom has been reached or is near," said Matt KingMatt King, chief investment officer at Bell Investment Advisors. "However, before anything more substantial can happen, we need to see that volatility washed out."

He said that many institutional investors want to get back into the market, but don't want to risk being hit with another big down day. So they are still waiting.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to one on volume of 1.1 billion shares. On the Nasdaq, advancers beat decliners nine to five on volume of 2.13 billion shares.

Banks and credit: A drop in lending rates helped drive the advance Tuesday, with investors continuing to welcome signs that government efforts to loosen up the credit market is starting to work.

The Federal Reserve started buying commercial paper Monday, short-term debt that businesses rely on for funding daily operations. Also Monday, the Treasury said it will start handing out $125 billion to nine banks this week to get credit moving again. The initiatives were all part of the $700 billion bank bailout plan to get banks lending to each other again.

The disruption in credit markets and lack of available lending over the last few weeks has exacerbated fears about a bigger economic slowdown. The lack of lending has made it harder for businesses and individuals to get critical loans.

The credit market had initially responded to some of the government's efforts, but lost momentum in the last few sessions as recession fears grew. On Tuesday, lending loosened up again, with Libor, the overnight bank-to-bank-lending rate, falling to 1.24% from 1.26% Monday. (Full story)

Economic news: A key measure of consumer mood fell to an all-time low, a reflection of the dismal market performance and tough economic conditions. The Conference Board's Consumer Confidence index plunged to 38 in October from a revised 61.4 in September. Economists thought the survey would fall to 52, according to Briefing.com forecasts. (Full story)

Another report showed home prices in August fell for the 25th month in a row. Meanwhile, prices in 10 major markets tumbled a record 17.7% versus a year ago.

Treasury prices slumped, raising the yield on the 10-year note to 3.77% from 3.68% late Monday. Treasury prices and yields move in opposite directions. (Full story)

Company news: Boeing and its biggest union have reached a tentative deal that could end the longest strike at the company in more than a decade. Boeing (BA, Fortune 500) shares rallied 4%.

Other markets: The dollar gained versus the euro and the yen, reversing its recent trend.

U.S. light crude oil for December delivery fell 60 cents to $62.62 a barrel after ending the previous session at a 17-month low.

Gasoline prices fell another 3.9 cents overnight, to a national average of $2.629 a gallon, according to a survey of credit-card activity by motorist group AAA. It was the 41st consecutive day that prices have decreased. During that time, prices have fallen by $1.23 a gallon, or nearly 32%.

COMEX gold for December delivery fell $2.70 to $740.20 an ounce.

Brutal month: With just over three trading sessions left, October is shaping up to have been one of the worst months ever on Wall Street.

As of Monday's close, the Dow has lost 2,675 points, or 24.7%, in October. Barring a massive rally over the next few sessions, the point loss will amount to the Dow's worst ever, according to Stock Trader's Almanac info going back to 1901. On a percentage basis, it's the Dow's fifth worst ever.

The S&P 500 has lost over 317 points, or 27.2%, and is currently on track to post its worst month ever on a point basis and third worst ever on a percentage basis, going back to 1930.

The Nasdaq is down 576 points, or 27.7%, tracking it's fourth-worst month ever on a point basis and its second-worst month on a percentage basis, going back to its inception in 1971.