In choppy trade, the Dow Jones Industrial Average closed up 68.88 points (0.61 per cent) at 11,417.43.

The Nasdaq composite rose 4.72 points (0.20 per cent) to 2,389.08 and the broad-market Standard & Poor's 500 index added 7.85 points (0.62 per cent) to 1,274.54.

The indexes alternated between gains and losses as traders followed ups and downs in the oil market. New York's main oil futures contract, light sweet crude for September delivery, closed up US$1.11 (S$1.57) at US$114.98 a barrel.

Sentiment was helped by HP's report on Tuesday that its profit for the quarter just ended rose 14 per cent to two billion dollars. The company also offered a better-than-expected outlook.

This eased selling fever on Wall Street in the past two sessions stemming from worries about more troubles in the US real estate sector that will likely widen losses for banks.

'Strong earnings guidance from Hewlett-Packard after the close last night appear to have reinvigorated the bulls, despite relatively uninspiring quarterly reports elsewhere on the Street', said Ms Andrea Kramer at Schaeffer's Investment Research.

But keeping trade cautious was skittishness over the future of Fannie and Freddie, the two government-sponsored enterprises (GSEs) that underpin trillions of dollars in mortgages.

Freddie Mac shares plummeted 22 per cent to US$3.25 and Fannie Mae sank 27 per cent to US$4.40 on renewed fears of insolvency and a possible government bailout. Both have lost over 90 per cent in the past year.

Some reports said that solvency concerns were mounting as Freddie Mac was forced to pay a high premium on its just-issued bonds, raising the prospect of a government bailout.

'The steep price of new debt raises the level of difficulty for both institutions in remaining solvent as higher interest rate costs cuts steeply into their operating margins thereby threatening both agencies with even deeper losses in coming quarters', said Mr Fred Dickson at DA Davidson & Co.

'The fate of Fannie Mae and Freddie Mac for equity holders in those issues will remain a high level topic of concern for not only holders of those issues but for the entire market'.

Among other key shares, investment bank Lehman Brothers shares rebounded somewhat from recent heavy losses, up 5.05 per cent to US$13.73 while Citigroup advanced 1.75 per cent to US$17.49.

Hewlett-Packard led the gainers, rising 5.65 per cent to US$46.16.

Bonds firmed. The yield on the 10-year Treasury bond fell to 3.799 per cent from 3.842 per cent on Tuesday and that on the 30-year bond eased to 4.443 per cent against 4.469 per cent.

Bond yields and prices move in opposite directions. -- AFP