The Dow Jones industrials were up nearly 280 points in the last quarter hour of the session, giving them a two-day gain of more than 1,160 points, when another bout of last-hour volatility wiped out the advance. Some analysts said hedge funds were cashing in their gains, while others said some investors were giving a bleak interpretation to the Federal Reserve's statement on the economy that accompanied its half-point rate cut.
The Dow ended down 74 points at the 8,890 level. The broader market indexes have ended the day mixed.
The Fed also reiterated that it expects government steps, including its own efforts to increase liquidity, to improve credit market conditions and the economy over time.
"It seems like they pretty much met expectations," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. "They more or less indicated elevated concerns about the economy but nothing in it suggests any real panic but that this is just one more step in their program to restore the financial system to complete functioning."
The market's back-and-forth trading, typical in the minutes after a Fed rate move, drew all the more scrutiny a day after an 889-point surge in the Dow Jones industrials Tuesday, its second-largest daily point gain after the 936-point surge on Oct. 13 that later evaporated as fears about the economy grew. The stock market has been extremely volatile lately - beyond a simple case of investor indecision, Wall Street's back-and-forth moves may also be part of its attempt to establish a bottom.
Not all observers saw the Fed's action as likely to aid the markets, at least initially.
"I think this 50 basis point (0.5 percentage point) cut was more symbolic than substantive," said Ed Hyland, managing director and global investment specialist in J.P. Morgan Private Bank. "It makes borrowing more cheap, but it doesn't necessarily help you find a willing lender. What the economy needs is willing lenders, people comfortable taking risk. It will take time for that to loosen up."
Other's saw it as a psychological move to reassure the market.
"The cut is a signal that we're in this to make sure that it works and we're asking you to rely on us," Barron H. Harvey, dean of Howard University Business School, told CBS News business correspondent Anthony Mason.
Advancers outnumbered decliners by about 2 to 1 on moderate volume of 1.03 billion shares on the New York Stock Exchange.
The yield on the three-month Treasury bill, regarded as the safest investment around and an indicator of investor sentiment, fell to 0.61 percent from 0.74 percent Tuesday. A drop in yield indicates an increase in demand. Meanwhile, the yield on the benchmark 10-year Treasury note rose to 3.87 percent from 3.84 percent late Tuesday.
The rate cut aside, some observers said the market has benefited on Tuesday and Wednesday from a break in the selling by hedge funds and mutual funds that has occurred as some investors exited the market and also at the behest of brokers who can force professional investors to set aside larger cash cushions as stocks lose value.
"As long as you can get a day where you can take a breath and you just don't have huge redemptions that are taking place then there is some money out there," he said.
Some investors are hesitant to re-enter the market after being hit hard. Even with Tuesday's jump, the three major stock indexes are still down more than 30 percent for the year, battered since last month's freeze-up of the credit markets. The troubles with the credit markets have made it harder and more expensive for businesses and consumers to get loans.
While signs such as reduced borrowing rates have emerged that the government action to revive credit markets is starting to work, investors remain skittish over the effects of the prolonged credit freeze on the economy, which relies on lending to feed growth.
Investors are hoping the latest rate cut will complement the government's still-unfolding efforts to aid the commercial paper market, where companies turn for short-term loans, and the banks themselves. The Treasury this week is investing directly in banks, hoping the cash will make them more likely to issue loans.