"When you have as sharp a decline as we had last week plus yesterday, it attracts a lot of buyers, or believers that are also buyers," said Hugh Johnson, chairman of Johnson Illington Advisors.
"There is a number that believe we're not going to have a hard landing, that we're only in the middle of a soft landing and it won't last long," Johnson said.
The Dow Jones Industrial Average was recently up 69.2 points at 13,236.4, with 20 of its 30 components trading higher.
The government reported new single-family home construction slowed to its weakest pace in 16 years in November, with starts down 5.4% to a seasonally adjusted annual rate of 829,000. .
"For the second month in a row, the volatile multi-family starts category was strong, while single-family groundbreaking activity sagged," said Stephen Stanley, chief economist at RBS Greenwich Capital.
In a related development, the Federal Reserve is proposing rules aimed at heading off another lending crisis like the one that hit the subprime-mortgage industry. .
The S&P 500 shed 8.5 points to 1,454.4, while the Nasdaq Composite gained 19.95 points to 2,594.41.
Equities also got an early boost from the ECB's move Tuesday to make available more than $500 billion to boost liquidity in the banking system. .
On the New York Mercantile Exchange, crude-oil futures were off 93 cents at $89.7 a barrel. .
In the metal pits, gold rallied, climbing 1% to $806.9 an ounce.
Volume on the New York Stock Exchange came to 1 billion shares, and advancing stocks topped those falling more than 3 to 1. On the Nasdaq, nearly 1.5 billion shares were exchanged, and advancing shares edged ahead of those advancing by 8 to 7.
Goldman Sachs reported fourth-quarter net income rose 2% from a year ago, with profit topping Wall Street estimates for an eighth straight quarter. Its stock, however, fell 3%.
In its forecast, Goldman Sachs "failed to offer any reassuring words about the outlook for 2008," said Frederick Ruffy, an analyst at Optionetics.
Shares of Best Buy also fell, recently down 0.2%, after the company said third-quarter profit climbed to 53 cents a share from 31 cents a year earlier, exceeding forecasts.
Adobe Systems Inc. shares were up 3% after the software maker late Monday reported strong fourth-quarter profit and sales that mostly topped analysts' estimates. .
In Europe, shares recovered a bit as investors moved back into banks as central banks moved to alleviate turmoil in the credit market. .
Asian stocks took a mostly upbeat course, with markets in Hong Kong and South Korea gaining and Japan's Nikkei 225 Average narrowing losses. .
On Monday, stock indexes fell to their lowest levels in more than two weeks on concern about U.S. economic growth.
By Kate Gibson