Sector Snap: Airline stocks rally as oil tumbles

The Amex Airline Index shot up 6.1 percent to 17.80, nearly erasing the week's losses. The Dow Jones industrial average, meanwhile, was up 0.6 percent to 11,875.9 in late morning trading.

Investors were eagerly anticipating word from the Fed later in the afternoon. The central bank is expected to leave interest rates untouched this time around.

A drop in oil prices brought relief to the slumping airline sector. The government said U.S. supplies of fuel and oil were larger than expected last week, suggesting that rapidly rising prices are crimping fuel demand further.

Light, sweet crude for August delivery fell $3.81 to $133.19 on the New York Mercantile Exchange.

Airline stocks are sensitive to movements in the energy market because fuel represents many airlines' largest cost.

Northwest Airlines Corp. was one of the sector's biggest gainers. On Tuesday, pilots at the carrier and Delta Air Lines Inc. said they had reached a tentative deal with Delta on a joint contract to cover both pilot groups when the companies combine later this year. That removes one key roadblock to the deal's completion.

Credit Suisse analyst Daniel McKenzie said the agreement came faster than expected, and allows Delta to speed the integration of the two companies and more quickly realize expected cost savings. He rates both stocks "Outperform."

Northwest shares rose 65 cents, or 11 percent, to $6.57. Delta shares increased 44 cents, or 8.4 percent, to $5.70.

Other big gainers included US Airways Group Inc., up 35 cents, or 14.3 percent, to $2.79, and AMR Corp., up 47 cents, to 8.2 percent, to $6.18.