Wall Street gains amid financial worries

Shares of mortgage finance companies Fannie Mae and Freddie Mac skidded lower on worries they will be forced to sell more new shares than anticipated to compensate for losses from the housing slump. Several retail banks and investment banks also dropped, particularly Lehman Brothers Holdings Inc.

The declines in financials came after Treasury Secretary Henry Paulson told Congress Wall Street can't expect the government to bail out troubled financial companies.

"For market discipline to effectively constrain risk, financial institutions must be allowed to fail," Paulson said.

Meanwhile, crude oil prices rebounded by more than $5 to more than $141 a barrel.

Though investors found a reason to buy after Dow Chemical's $15 billion all-cash acquisition of the special chemicals maker Rohm and Haas, they are cautious ahead of quarterly earnings, in particular financial results due next week.

"Investors lack real clarity from the banks," said Marc Pado, U.S. market strategist at Cantor Fitzgerald in New York. "It's this uncertainty that keeps investors out of the market so what you get is a situation where you're reacting to news. There are a lot of crosscurrents."

The Dow Jones industrial average finished up 81.58, or 0.73 percent, at 11,229.02. Oil's resurgence back above $141 a barrel briefly pulled the Dow into negative territory in afternoon trading.

Broader stock indicators also finished higher. The Standard & Poor's 500 index gained 8.70, or 0.70 percent, to 1,253.39, while the Nasdaq composite index rose 22.96, or 1.03 percent, to 2,257.85.

Light, sweet crude for August delivery rose $5.60 to $141.65 a barrel on the New York Mercantile Exchange on another missile test by Iran and worries about more supply disruptions in Nigeria.