Stocks open lower on lackluster earnings reports

Treasury Secretary Timothy F. Geithner persuaded Wall Street to give banks another chance Tuesday.

Geithner’s assertion that “the vast majority” of banks have enough capital pulled stocks from a slump that began with a sell-off Monday and spilled over into Tuesday morning. The Treasury chief also told a bailout oversight panel that some banks would be allowed to repay their capital infusions with the blessing of bank regulators.

The comments signaled that banks might not get poor marks in government “stress tests” designed to determine whether they have enough capital to survive if the economy turns worse. The test results are due May 4.

“There is the hope that everything will be well after the stress tests,” said John Nichol, senior portfolio manager at Federated Investors.

The Dow Jones industrial average jumped 127.83 points, or 1.6%, to 7,969.56 after tumbling 290 points Monday on worries about bad debt at banks and the implications of the stress tests. That drop interrupted a six-week rally that had lifted the Dow 24% from a 12-year low.

Broader stock indicators posted sharper gains Tuesday. The Standard & Poor’s 500 index advanced 17.69 points, or 2.1%, to 850.08, and the Nasdaq composite index gained 35.64 points, or 2.2%, to 1,643.85.

The Russell 2,000 index of smaller companies rose 3.9%.

About four stocks rose for every one that fell on the New York Stock Exchange.

Bank stocks, which led the market lower Monday, bounced back after Geithner’s remarks. JPMorgan Chase surged 9.6%, Citigroup jumped 10%, and Goldman Sachs Group climbed 4.7%. An index of 24 bank stocks rose 8.1%.

In a notable turnaround, Huntington Bancshares fell as much as 26% in early trading before ending up 11%.

The rally in financial stocks overshadowed mixed earnings reports from some big-name companies.

Shares of Coca-Cola slumped 2.8% after its first-quarter sales fell short of expectations. Merck fell 6.7% after posting a 57% drop in profit.

Investors reacted more positively to earnings reports from Caterpillar, DuPont and United Technologies. DuPont shares surged 4.9%, United Technologies gained 4.8%, and Caterpillar rose 3%.

Treasury yields rose along with stocks. The benchmark 10-year Treasury note climbed to 2.90% from 2.84% late Monday.

Near-term oil futures rose 63 cents to settle at $46.51 a barrel on the New York Mercantile Exchange.

The dollar was mixed against other major currencies. Gold futures dropped $4.90 to $882.10 an ounce.

Overseas, key stock indexes fell 0.1% in Britain, 0.3% in Germany, 0.2% in France and 2.4% in Japan.