NEW YORK — Stocks rose Tuesday, rebounding a day after their steep tumble as a jump in consumer confidence offset some of the market's increasing concerns about the financial sector. Falling oil prices also helped lift the Dow Jones industrial average by about 125 points.

The Conference Board's index of consumer confidence rose to 51.9 in July from 51 in June, a welcome signal for investors worried about the mood of investors, which is key because their spending accounts for more than two-thirds of U.S. economic activity.

A bounce was also to be expected after the Dow lost nearly 240 points Monday on worries about the sagging financial sector. Still, the upbeat consumer reading did help soothe investors concerned about growing losses related to the credit crisis, especially after Merrill Lynch & Co. announced another $5.7 billion in write-downs.

Inflation concerns also eased as oil extended the declines of recent weeks. Light, sweet crude fell $3.13 to $121.60 on the New York Mercantile Exchange.

In midmorning trading, the Dow rose 132.14, or 1.19 percent, to 11,263.22. Monday's 239-point decline put the blue chips back in bear market territory.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 13.43, or 1.09 percent, to 1,247.80, and the Nasdaq composite index advanced 41.25, or 1.82 percent, to 2,305.47.

Bond prices fell after a rally Monday in which investors rushed to the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.08 percent from 4.01 percent late Monday.

The dollar was mostly higher against other major currencies, while gold prices fell.

Merrill, which plans to issue new stock to raise $8.5 billion, said the latest write-downs are tied to additional losses on the sale of mortgage securities and other instruments. The disclosure was a setback for investors hoping that financial companies were close to putting the credit crisis behind them.

Merrill's decision comes only weeks after the world's largest brokerage posted its fourth straight quarterly loss. The stock fell $1.21, or 5 percent, to $23.12.

Not all the economic readings of the day were positive. More downbeat news arrived about housing — home prices extended their slide in May. The S&P/Case-Shiller 20-city index declined 15.8 percent from a year earlier, the sharpest drop since its inception in 2000. The narrower 10-city index is down 16.9 percent, its biggest decline in its 21-year history.

But better-than-expected quarterly earnings likely helped shore up sentiment.

United States Steel Corp.'s profit more than doubled in the second quarter following an increase in demand and pricing. The stock jumped $21.51, or 15 percent, to $166.84.

Colgate-Palmolive rose $4.59, or 6.7 percent, to $73.15 after reporting that its second-quarter earnings rose 19 percent as price increases helped the consumer products company offset rising input costs.

Advancing issues outnumbered by nearly 3 to 1 on the New York Stock Exchange, where volume came to 268.5 million shares.

The Russell 2000 index of smaller companies rose 10.64, or 1.53 percent, to 706.79.

Overseas, Japan's Nikkei stock average fell 1.46 percent. In afternoon trading, Britain's FTSE 100 rose 0.05 percent, Germany's DAX index advanced 0.42 percent, and France's CAC-40 declined less than 0.01 percent.

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