Technology shares also rose amid relief that chip maker Texas Instruments did not cut its earnings outlook. A spate of recent warnings from other firms about weaker spending in the cell phone industry has raised investor unease about the outlook for technology companies.

Tech bellwether International Business Machines climbed 3.7 percent at US$119.27 and led gains on the Dow.

"We're getting a relief rally today. Selling seems to have dried up a bit, which is a positive," said Bobby Harrington, head of block trading at UBS in Stamford, Connecticut.

Financial shares also turned moderately positive even though Lehman Brothers, the No. 4 U.S. investment bank, posted an unexpectedly large quarterly loss on mortgage-related write-downs and failed to announce any firm deals to raise much-needed capital. An index of bank shares rose 0.8 percent.

But jitters remained. Washington Mutual, the biggest U.S. savings and loan, plunged some 20 percent on fears it would default on its debt.

"The market still has an acute case of the financial jitters but investors have concluded that we're not going off the edge of Niagara Falls," said Fred Dickson, market strategist and director of retail at D.A. Davidson & Co in Lake Oswego, Oregon.

The Dow Jones industrial average was up 123.11 points, or 1.10 percent, at 11,353.84. The Standard & Poor's 500 Index was up 15.64 points, or 1.28 percent, at 1,240.15. The Nasdaq Composite Index was up 31.14 points, or 1.41 percent, at 2,240.95.

Texas Instruments shares rose 1.5 percent to US$22.03. The Philadelphia Stock Exchange index of semiconductors was up 1.1 percent.

Traders said energy shares were also getting a boost from a valuation standpoint.

"There are attractive valuations at these levels, though people who invested previously got shellshocked," Harrington said. "But my gut is there are good values there, even with the price of oil around US$100 a barrel."

Lehman shares, which had plunged 45 percent on Tuesday, were up 4.1 percent at US$8.11 after falling to a 10-year low of US$7.40.

Although Lehman did not announce any firm deals to raise desperately needed capital as mortgage losses soar, the bank said it would sell a majority stake in its investment management division, spin off commercial real estate assets and slash its annual dividend.

Washington Mutual, the day's second biggest loser on the New York Stock Exchange, traded at US$2.70, down 18.2 percent, on fears that new accounting rules may dissuade potential buyers from bidding on the distressed savings and loan.

Shares of Wachovia Corp were down 2.5 percent at US$15.84 while Merrill Lynch fell 3.8 percent to US$23.81.

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