Market rebounds on lower oil, financials

NEW YORK (Reuters) - Wall Street rose off earlier losses in volatile trade on Tuesday as a big drop in the price of oil relieved some concerns about the impact of higher fuel costs on consumer spending and corporate profits and as investors snapped up beaten-down shares such as banks.

The Dow and S&P were little changed, having spent much of the day sharply lower, while the Nasdaq rose.

Optimism about a potential takeover in the telecoms sector also lifted investor spirits. Sprint Nextel Corp (S.N) shares jumped almost 14 percent after CNBC reported that South Korea's SK Telecom Co was in talks to buy the No.3 U.S. wireless service.

Financial shares rose, after opening at levels not seen since 1998, as investors snapped up the beaten-down stocks. In addition, traders who had bet these stocks would fall locked in profits, removing a big negative weight on the shares. This was spurred in part by the U.S. Securities and Exchange Commission saying it would clamp down on some trading that involves betting that the shares of Fannie Mae (FNM.N) and Freddie Mac (FRE.N) and other major financials will fall.

"I think you have some good old-fashioned people coming in, thinking that it is oversold and trying to do bottom fishing," said Matt Kaufler, portfolio manager and equity analyst at Clover Capital Management, Rochester, New York.

The Dow Jones industrial average .DJI was down 1.22 points, or 0.01 percent, at 11,053.97. The Standard & Poor's 500 Index .SPX was down 2.05 points, or 0.17 percent, at 1,226.25. The Nasdaq Composite Index .IXIC was up 22.21 points, or 1.00 percent, at 2,235.08.

Fed Chairman Ben Bernanke said in congressional testimony that financial markets were weighed down by the housing slump and added that the outlook for economic growth and inflation was unusually uncertain.

But the Fed chief also said the banking system is well-capitalized, adding, "Our concern has turned ... less on the solvency of these institutions and more on their ability to extend the credit our economy needs to keep growing."

Oil tumbled $6.64 to near $138.54 a barrel in volatile trading on profit-taking and concerns about the U.S. economy.

(Reporting by Kristina Cooke and Walter Brandimarte; Editing by Leslie Adler)