Technology and retail companies bounced back after a sharp sell-off last week, helping the S&P 500 stave off a bear market for another day. Wal-Mart was the biggest boost to the Dow, and Apple rose ahead of Friday's new iPhone launch, helping the Nasdaq.

The positive mood continued after the closing bell, with aluminium producer Alcoa posting stronger-than-expected results. Its shares rose more than 5 per cent after the bell.

Financial shares climbed after Federal Reserve Chairman Mr Ben Bernanke said in a speech that the US central bank may extend emergency lending facilities for big Wall Street banks past year-end, showing the Fed is determined to stop the housing-inspired credit crisis from wreaking further havoc on the economy.

Treasury Secretary Mr Henry Paulson added to that optimism when he said Treasury was working on ways to shore up mortgage financing. And JPMorgan Chase's chief executive, Mr Jamie Dimon, said in a speech that the future of the US economy is bright, though more short-term suffering is ahead.

'You had two major officials today who made clear that they will do everything possible to shore up the housing market,' said Mr Andrew Harding, chief investment officer for fixed-income at Allegiant Asset Management in Cleveland.

The Dow Jones industrial average jumped 152.25 points, or 1.36 per cent, at 11,384.21, while the Standard & Poor's 500 Index gained 21.39 points, or 1.71 per cent, to 1,273.70.

The Nasdaq Composite Index rose 51.10 points, or 2.28 per cent, at 2,294.42, snapping a 3-day losing streak.

Fannie Mae and Freddie Mac shares rebounded from 15-year lows, after the mortgage finance companies' main regulator said proposed accounting rules should not force them to raise more capital. The comments eased fears the companies' value would be diluted by a massive capital increase.

Fannie Mae shares rose 11.9 per cent to US$17.62 (S$24.03) and Freddie Mac shares jump 13 per cent to US$13.46.

General Electric shares rose 3.5 per cent to US$28.06, and were the top boost to the S&P 500, just days before the economic bellwether releases its second-quarter earnings.

Wal-Mart added 3.9 per cent to US$59.11.

Apple gained 2.5 per cent to US$179.55. Its new iPhone sold out online in Britain ahead of Friday's launch, defying general consumer gloom. Google rose nearly 2 per cent to US$554.53 and IBM was also up almost 2 per cent to US$123.88.

An index of S&P financial shares rose 5.7 per cent.

JPMorgan shares rose 5.1 per cent to US$35.77.

A drop of more than 4 per cent in US crude prices made energy companies the top drags on the S&P and the Dow.

Exxon Mobil slid 1.2 per cent to US$85.94, Chevron also fell 1.1 per cent to US$95.79, and oil services company Schlumberger declined 3.3 per cent to US$96.19.

Economic data released on Tuesday showed consumers still hurting, however. Pending sales of previously owned homes plummeted 4.7 per cent in May, and sales at chain stores, though improved last week, were weaker in June.

Trading was moderate on the New York Stock Exchange, with about 1.7 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.49 billion shares traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones by about 2 to 1 on NYSE and Nasdaq. -- REUTERS