Also in the mix: Hewlett-Packard's upbeat earnings.

The Dow Jones industrial average (INDU) and the broader Standard & Poor's 500 (SPX) index both gained 0.6%. The Nasdaq composite (COMP) rose 0.2%.

Bond prices rose, lowering the corresponding yields. Oil prices rose, as did the dollar versus other major currencies.

Stocks fell Wednesday morning as rising oil prices and worries about Fannie Mae and Freddie Mac overshadowed HP's earnings. But by midday, stocks had recovered as oil prices slumped after the government's weekly oil supply report showed a bigger-than-expected jump in crude inventories.

The afternoon saw the major stock gauges seesawing, as investors tried to balance competing influences. A last hour run-up in recently battered financial shares helped stocks finish in the plus column.

But the outlook for stocks is expected to remain murky in the weeks ahead.

There are so many questions about financial market issues that it's going to be hard for stocks to move much, one way or the other, said Jim Porter, manager of the Aston/New Century Absolute Return ETF (ANENX).

Oil prices closed just below $115 a barrel on the New York Mercantile Exchange, well off highs above $147 a barrel from a month ago, but not low enough to entice investors to continue plowing money into stocks.

Should oil prices fall below $110 a barrel over the next few weeks that would give a bigger boost to stocks, said Dean Barber, president at Barber Financial Group.

"But if we don't see oil break down more from here, stocks are going to keep moving in this sideways trade," he said.

Trading volume was low and that added to the volatility in the market, he said.

Market breadth was mixed. On the New York Stock Exchange, winners beat losers eight to seven on volume of 1.07 billion shares. On the Nasdaq, decliners topped advancers by a narrow margin on volume of 1.8 billion shares.

Wall Street retreated for the first two sessions of the week on a mix of higher oil prices, a weaker dollar, sluggish readings on the economy and more housing and credit market malaise.

Financials: Mortgage finance companies Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) slumped for a third straight session on worries that a government takeover of the two companies is unavoidable. Fannie Mae shares lost almost 27% and Freddie Mac shares fell 22%.

Additionally, Goldman Sachs cut third-quarter and full-year earnings estimates on five brokerages, according to published reports, saying that more writedowns are on the way.

The companies mentioned were Citigroup (C, Fortune 500), JP Morgan Chase (JPM, Fortune 500), Lehman Brothers (LEH, Fortune 500), Merrill Lynch (MER, Fortune 500) and Morgan Stanley (MS, Fortune 500).

With the exception of Morgan Stanley, the stocks all managed to rally, along with other stocks hit in the recent selloff.

Other big gainers included energy shares such as Exxon Mobil (XOM, Fortune 500) and Chevron (CVX, Fortune 500).

Hewlett Packard: Hewlett-Packard (HPQ, Fortune 500) reported higher quarterly sales and earnings that topped forecasts late Tuesday. The company also forecast that fiscal fourth-quarter earnings would top current expectations. HP stock gained 5.7% Thursday.

Fuel prices: U.S. light crude oil for September delivery rose 45 cents to settle at $114.98 a barrel on the New York Mercantile Exchange, having traded on both sides of unchanged following the weekly oil inventories report.

Retail gas prices dropped overnight, extending a downward trend for a 34th day, according to a survey of gas station credit-card activity. (Full story.)

Other markets: In the bond market, Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.79% from 3.83% late Tuesday. Prices and yields move in the opposite direction.

In currency trading, the dollar gained against the euro and the yen.

COMEX gold for October delivery rose $1.90 to settle at $812.40 an ounce. 

The Dow Jones industrial average (INDU) added 0.7%, while the broader Standard & Poor's 500 (SPX) index added 0.6%. The Nasdaq composite (COMP) gained 1%.

Stocks tumbled Tuesday and Wednesday on a mix of higher oil prices and more financial market malaise. That initially spilled into Thursday morning trading, as investors considered a spike in consumer inflation and Wal-Mart's mixed outlook.

But the consumer spending worries were set aside as investors picked up some of the stocks hit hardest in the previous 2 down sessions, including financial shares, automakers and retailers. Sliding oil prices added to the day's advance.

"I guess the perception is that the inflation report is backwards looking, and with the correction in commodities we've seen recently, the next report will show improvement," said Michael Church, senior portfolio manager at Church Capital.

Church says he thinks it is too early to conclude that commodity prices are going to correct a lot more, but for the moment that expectation seems to be helping investors.

"Certainly the drop in oil has been very significant," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

Since peaking at more than $147 per barrel in mid-July, oil prices have dropped around 22%.

Investors also have been getting a leg up from a recovering greenback. "Largely, you have the dollar rally powering the markets forward," Church said.

Additionally, Thursday's trade was continuing a pattern that's been in play since the stock market hit what was likely a bottom in mid-July, Detrick said. Since that time, investors have largely been willing to digest the session's negative news quickly and then step in to buy selectively.

Friday brings reports on manufacturing and consumer sentiment. Earnings reports are due from retailers J.C. Penney (JCP, Fortune 500) and Abercrombie & Fitch (ANF).

Fuel prices: U.S. light crude oil for September delivery fell 99 cents to settle at $115.01 a barrel on the New York Mercantile Exchange, due to bets that a slowing U.S. economy will drive down oil prices.

Retail gas prices dropped overnight, extending a downward trend for a 28th day, according to a survey of gas station credit-card activity. (Full story.)

On the move: Gains were broad based, with 26 of 30 Dow components advancing.

AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), General Motors (GM, Fortune 500), Home Depot (HD, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) were the Dow's biggest gainers.

JPMorgan Chase and Morgan Stanley agreed to buy back $7 billion in auction-rate securities as part of a settlement with regulators. The companies will also pay a combined $60 million in fines.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by nearly 2 to 1 on volume of 1.01 billion shares. On the Nasdaq, advancers topped decliners 3 to 2 on volume of 1.89 billion shares.

CPI: The July Consumer Price Index jumped at a 5.6% annual rate, touching a 17-year high. CPI jumped 0.8% vs. June levels, double analysts' forecasts, as inflationary pressure continued to amp up.

The so-called core CPI, which strips out volatile food and energy prices, rose 2.5% vs. a year ago and 0.3% vs. June. Both numbers were above economists' expectations. (Full story.)

Wal-Mart Stores: The world's largest retailer reported higher quarterly earnings and sales, thanks to the government stimulus payments and shoppers' need to find deals amid the sluggish economy. Earnings topped estimates, while sales missed forecasts.

But with the stimulus impact petering out, Wal-Mart forecast that current-quarter earnings could miss analysts' estimates. The company also forecast full-year earnings in a range that sets the midpoint below analysts' forecasts. Wal-Mart (WMT, Fortune 500) shares tiptoed higher. (Full story.)

Jobless claims: The number of Americans filing new claims for unemployment last week dropped from 6-year highs reached the week before. However, the decline was smaller than what economists were expecting. (Full story.)

Housing: July foreclosure filings jumped 8% from June and 55% from a year ago, according to a report released Thursday by RealtyTrac, an online seller of foreclosed homes. Banks took back 77,295 homes in the month, a 138% jump from a year ago. (Full story.)

A separate report showed a 7.6% year-over-year drop in the median single-family existing-home price. (Full story.)

In other housing news, former Federal Reserve Chairman Alan Greenspan said that the market could bottom in 2009. (Full story.)

Other markets: In the bond market, Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.89% from 3.93% late Wednesday.

In currency trading, the dollar gained against the euro and the yen.

COMEX gold for October delivery fell $16.90 to settle at $810.70 an ounce.  

The Dow Jones industrial average (INDU) gained 0.4%. The broader Standard & Poor's 500 (SPX) index gained 0.7% and the Nasdaq composite (COMP) added 1%.

Small caps gained too, with the Russell 2000 index up 2.3%.

Wall Street seemed to follow the path of the oil market throughout the session. Stocks slipped early as oil prices rallied on worries about supply disruptions in energy-rich Central Asia, amid the military conflict between Russia and Georgia.

But crude resumed last week's slide after Iran called for renewed nuclear talks and China reported a decline in crude imports, countering threats to supplies in Eastern Europe. That turnaround helped stocks rebound. Oil prices then erased half of their losses late in the session, and the stock market followed suit.

Any advance Monday was "oil-related," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. He said that despite the events in Russia and Georgia, investors believe that prices are generally heading lower, and therefore stocks are recovering.

Due to a sense that demand is decreasing, "all these supply disruptions are being ignored in the great outflow of money out of commodities," said David Levy, portfolio manager at Kenjol Capital Management.

He said the market is experiencing some sector rotation, with money coming out of oil and other commodities and going into healthcare and technology. Investors have even been dipping their toes into financials a bit lately, although he says that the sector remains unstable.

"Basically, what the market loved going into the quarter it now hates and vice versa," he said.

However, Rovelli noted that because it's a summer Monday, big stock moves can be deceptive. He said any advance will be tested later this week, when the retail sales and consumer inflation reports are released.

The stock advance also seemed to lose momentum after the Fed released a study that showed 75% of banks have tightened lending standards on home mortgages and other loans. (Full story).

Stocks jumped Friday, with the Dow industrials gaining over 300 points, as oil prices lost almost $5 a barrel to trade at three-month lows and the dollar rallied against other major currencies.

Stocks were also up sharply for the week, with the Dow gaining over 3.5%, the S&P 500 gaining almost 3% and the Nasdaq gaining 4.5%.

Tuesday brings readings on the June trade balance in the morning and the July Treasury budget in the afternoon. Bank UBS (UBS) also reports results Tuesday.

Fuel prices: U.S. light crude oil for September delivery lost 75 cents to settle at $114.45 a barrel on the New York Mercantile Exchange.

Retail gas prices dropped overnight, extending a downward trend for a 25th day, according to a survey of gas station credit-card activity. (Full story.)

Stock movers: Tech led the way, with Amazon.com (AMZN, Fortune 500), Apple (AAPL, Fortune 500) and Google (GOOG, Fortune 500) among the big gainers.

Amazon.com (AMZN, Fortune 500) gained 9.4% after Citi Investment Research said it will probably sell twice as many Kindle electronic book readers this year as Citi initially thought it would.

Citi upgraded Qwest Communications (Q, Fortune 500) to "buy" from "hold," saying that the company is due for a restructuring that should improve returns to shareholders. Qwest shares gained 6% and topped the New York Stock Exchange's most actives list.

Retail stocks jumped on bets that lower fuel costs will boost consumer spending. The S&P Retail (RLX) index jumped 4.8%.

American Express (AXP, Fortune 500), AT&T (T, Fortune 500), Citigroup (C, Fortune 500), Home Depot (HD, Fortune 500) and General Motors (GM, Fortune 500) were the Dow's biggest gainers.

Verizon Communications (VZ, Fortune 500) said it reached an agreement Sunday with two unions that represent 65,000 workers, averting a potential strike. The three-year contract gives workers pay increases and changes in retirement benefits. Shares gained 2% (Full story).

Waste Management (RSG) boosted its unsolicited bid for rival Republic Services (RSG) to $37 per share, or $6.73 billion, from the original offer of $34 per share. Republic rejected that offer last month.

Market breadth was positive. On the New York Stock Exchange, winners beat losers three to two on volume of 1.26 billion shares. On the Nasdaq, advancers topped decliners by more than two to one on volume of 2.32 billion shares.

Other markets: In currency trading, the greenback rose versus the euro and slipped versus the yen, recovering from bigger morning losses.

COMEX gold for October delivery fell $36.40 to settle at $824.30 an ounce.

In the bond market, Treasury prices slumped, raising the yield on the benchmark 10-year note to 4% from 3.93% late Friday.

In global trading, European markets ended higher, while Asian markets finished mixed. China's benchmark Shanghai Composite slumped to a 19-month low on economic worries.  

The slide in oil prices, in combination with a strong dollar, helped distract investors from the latest bad news out of the financial sector - including Fannie Mae's steep quarterly loss.

The Dow Jones industrial average (INDU) gained more than 300 points, or 2.7%. The broader Standard & Poor's 500 (SPX) index gained 2.4%, and the tech-heavy Nasdaq composite (COMP) gained 2.5%.

"The stocks most sensitive to oil prices are the ones doing the best today, but it's also a really broad rally," said Robert McGee, portfolio manager at the Dunham Large Cap Value Fund (DNLVX).

A broad swath of stocks benefited, but transportation and consumer issues responded the most.

"Investors are responding to the decline in commodity prices that we've seen recently," said Michael Sheldon, chief market strategist at RDM Financial Group. "They're rotating out of the fundamentally strongest groups and into sectors that may benefit going forward if oil prices continue to retreat."

He said that's partly why big consumer stocks are doing so well. As a group, they've seen disappointing earnings of late, but there may be some optimism that earnings in the fall could pick up, if fuel costs keep retreating.

Those sectors could continue to benefit over the short run, said J. Stephen Lauck, portfolio manager at Ashfield Capital Partners.

"I don't think the U.S. consumer is going to come roaring back, but some of these sectors are really depressed," Lauck said. "So you can have a rally in these areas."

Fuel prices: U.S. light crude oil for September delivery slumped $4.82 to settle at $115.20 per barrel on the New York Mercantile Exchange, hitting three-month lows. Prices fell as the dollar rallied to a five-month high against the euro and worries about a Turkish supply disruption eased. (Full story.)

Oil prices have slipped more than 20% since peaking above $147 a barrel in July.

Should oil prices generally continue to trend lower, that would be a plus for stocks, as it dampens the risk of recession plus inflation, often called stagflation, McGee said.

However, he said he expects oil prices to continue to be volatile. Additionally, even if inflation becomes less of a threat going forward, the housing and credit market malaise, sluggish corporate earnings and slow economic growth will continue to drag on stocks, McGee said.

Retail gas prices dropped more than a penny overnight, extending the downward trend for a 22nd day, according to a survey of gas station credit-card activity. (Full story.)

Dollar comeback: In currency trading, the greenback rallied versus the euro after the European Central Bank's ho-hum outlook on European global growth. The dollar advanced against the yen as well.

The greenback's rise also played a big role in Friday's advance, said Lauck.

Looking forward, "a stronger dollar would be very bullish for stocks in terms of restoring faith globally in the U.S. marketplace," he said.

Should the dollar continue to firm up, it would get more investors overseas that have been sitting on cash interested in moving back into U.S. stocks, he said. It could also bring "an acceleration of strategic purchases," he said.

Stock movers: Companies whose profits are directly impacted by fuel prices led the charge, including truckers, railroads and airlines. The Dow Jones Transportation (DJTA) average gained 4%.

But gains were broad based, with all 30 of the Dow's components rising, including McDonald's (MCD, Fortune 500). The fast-food company said Friday that same-store sales jumped 8% worldwide. (Full story.)

Other big gainers included Boeing (BA, Fortune 500), Citigroup (C, Fortune 500), DuPont (DD, Fortune 500) and Home Depot (HD, Fortune 500).

Home Depot was among many consumer names rallying on hopes that less money spent on fuel will mean more money spent on other things. Lowe's (LOW, Fortune 500) and Best Buy (BBY, Fortune 500) rose, too.

Market breadth was positive. On the New York Stock Exchange, winners topped losers 3 to 1 on volume of 1.25 billion shares. On the Nasdaq, advancers topped decliners by more than 2 to 1 on volume of 2.23 billion shares.

Financials: The sector remained in focus Friday, after Fannie Mae reported a big quarterly loss that was more than triple what analysts were expecting, reflecting ongoing deterioration in housing market conditions.

Fannie swung to a loss of $2.3 billion, or $2.54 per share, due to big reserves for credit losses in the quarter, versus a per-share profit of $1.86 a year ago. Analysts had thought Fannie would lose 68 cents per share.

The mortgage finance behemoth also slashed its quarterly dividend and said it will cut its annual operating costs by 10% as a means of saving money.

Fannie (FNM, Fortune 500) shares slumped 9% in active trade.

Fannie's chief executive warned of steeper credit market losses ahead, echoing the dour outlook of its sister company, Freddie Mac (FRE, Fortune 500), which reported results two days ago. (Full story.)

In other financial sector news, Merrill Lynch (MER, Fortune 500) said late Thursday that it will buy back around $12 billion in auction-rate securities from clients over a one-year period, starting in January. Merrill shares gained 3%.

On Thursday, Citigroup (C, Fortune 500) agreed to buy back more than $7 billion in auction-rate securities, after the New York attorney general accused the company of making "misrepresentations" to investors. Shares jumped 5% Friday.

Other markets: The rally in the greenback Friday pressured oil and a variety of other commodities, which are traded in dollars. COMEX gold for October delivery fell $13.10 to settle at $860.70 an ounce. Silver, platinum and aluminum fell, too.

In the bond market, Treasury prices declined, raising the yield on the benchmark 10-year note to 3.95% from 3.92% late Thursday.

Economy: Second-quarter worker productivity grew at a 2.2% annualized rate, down from the 2.6% growth rate seen in the first quarter and short of analysts' forecasts for a rate of 2.5%.

Another report showed that wholesale inventories rose 1.1% in June, after climbing 0.9% in the previous month. Economists expected inventories would grow 0.6%. 

An hour before the open, Nasdaq and S&P futures were mixed after pointing higher earlier in the morning. Stocks finished sharply lower Thursday after some signs of economic weakness, including disappointing retail sales and a surge in consumer credit.

Fannie Mae The funder of mortgages reported a much wider-than-expected loss of $2.3 billion, or or $2.54 a share amid the continuing credit crunch. Analysts surveyed by Thomson Reuters forecast a loss of 68 cents a share.

The news sent Fannie (FNM, Fortune 500) shares down 12% in pre-market trading.

Fannie's results came two days after its fellow government-sponsored enterprise, Freddie Mac (FRE, Fortune 500), posted a $821 million loss, slashed its dividend 80% and warned of further problems in the housing and credit markets.

Oil Crude futures fell $2.02 to near $118 a barrel in Friday electronic trading on a stronger dollar, which outweighed concerns over the recent sabotage of Turkish pipelines.

And average retail gasoline prices fell yet again overnight, declining by more than a penny to $3.836 a gallon from $3.849, according to an AAA survey of gas station credit card swipes revealed Friday. The decline marks the 22nd consecutive day that gas prices have moved lower.

Prices are now down nearly 7% from the record high of $4.114 that gas prices hit on July 16.

Merrill Lynch The brokerage said late Thursday it will buy back $12 billion worth of auction-rate securities from 30,000 customers. Merrill (MER, Fortune 500)'s action came after Citigroup (C, Fortune 500) announced a settlement with New York State to reimburse holders of $7 billion in the securities. Merrill shares fell 0.3% in premarket trading

Productivity The government said second-quarter productivity rose 2.2% from the first quarter, less than the 2.5% increase expected in an economists' survey by Briefing.com.

Results A handful of companies delivered quarterly results before the opening bell including the homebuilder Beazer Homes USA (BZH) which reported a narrower loss. Still, the loss was much bigger than analysts were anticipating.

And the troubled bond insurer MBIA (MBI) booked a surprising second-quarter profit of $1.7 billion on Friday, helped by a pretax gain that was the result of a downgrade by the rating agencies Moody's and Standard & Poor's.

Overseas The dollar rallied in Friday trading against the 15-nation euro after the European Central Bank offered a somewhat gloomy outlook on European economic growth. The dollar also headed higher against the yen.

Asian markets ended mixed Friday; Tokyo's Nikkei index was up 0.3% but shares in China and Hong Kong fell as the opening of the Beijing Olympics neared. European stocks were mixed in late morning trading.