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Wall Street rebounded Tuesday after the Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc. — a vote of confidence for the nation’s largest bank, which has suffered severe losses amid the ongoing crisis in the mortgage market. The Dow Jones industrials rose more than 150 points.

The banking industry has been battered in recent months as defaults on home loans have risen and rendered some mortgage-backed securities essentially worthless. Major financial institutions, including Citi and its competitors, have had to book some $80 billion of writedowns on those holdings — a trend that has left the markets nervous about the full extent of the damage.

“The Citi deal is certainly a relief after a series of negative news on Monday with respect to the financials,” said Todd Salamone, director of trading at Schaeffer’s Investment Research. “Sovereign wealth funds that have plenty of cash may be viewed as a potential rescuer given the balance sheet troubles the banks are having. A weak dollar makes it that much more possible.”

Investors were relieved that Citi was able to secure an injection of capital, and that others might be able to do the same. Concerns about further writedowns caused the Dow to fall 240 points Monday, bringing the blue chip index, along with the Standard & Poor’s 500 index, down 10 percent from recent highs, a decline that signifies a correction.

Still, the market showed some vulnerability to anyone raising the specter of a sagging economy.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he won’t be surprised if U.S. economic data over coming months is weak, and warned that recent central bank rate cuts have increased the risk of higher inflation. Meanwhile, Federal Reserve Bank of Chicago head Charles Evans said in a speech that further turmoil in financial markets could cut into business investment and curb consumer spending on big-ticket items.

Their comments helped erode some of the day’s gains. The Dow rose 150.54, or 1.18 percent, to 12,883.98 after being up nearly 250 points earlier in the session.

Broader stock indexes also moved higher, with the S&P 500 index up 9.39, or 0.67 percent, at 1,416.61, and the Nasdaq composite index up 23.36, or 0.92 percent, at 2,564.35.

The seesaw trading so far this week is typical of what investors have seen for months. The market has been erratic as investors have struggled with and tried to overcome concerns about the banking sector, the credit markets, consumer spending, energy prices and the overall economy.

A pullback in oil prices aided the market’s gains. A barrel of light, sweet crude dropped $3.28 to $94.42 on the New York Mercantile Exchange on expectations that the Organization for Petroleum Exporting Countries will raise production at its Dec. 5 meeting.

Government bond prices fell. The yield on the 10-year Treasury note jumped to 3.94 percent from 3.85 percent late Monday. Gold prices fell as the dollar rebounded.

Abu Dhabi’s purchase of a stake in Citigroup will make the city-state one of the bank’s largest shareholders. Sheik Ahmed Bin Zayed Al Nahayan called Citi “a premier brand and with tremendous opportunities for growth.” Citigroup shares rose 17 cents to $29.97.

Standard & Poor’s said it expects Morgan Stanley will take a $4.2 billion charge, up from an earlier $3.7 billion estimate and projected Merrill will write down 25 percent to 30 percent of its $21 billion of such assets in the fourth quarter. The brokerages’ shares continued to rally with other financial stocks.

Still, Morgan Stanley shares jumped 99 cents to $48.97, while Merrill shares added 52 cents to $51.75.

Brokerage shares were somewhat under pressure after Standard & Poor’s downgraded Morgan Stanley and Merrill Lynch & Co. to “sell,” saying that further deterioration in the mortgage securities market has added to pressure on the value of the investment banks’ asset-backed securities. But that news did little to faze the market’s enthusiasm.

“While these announcements from the financial industry are continuing to unsettle investors, the lower dollar has put the U.S. in the position of being for sale at attractive prices, so Abu Dhabi can come along and buy an interest in Citi,” said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif. “Anytime you have corporate action, that’s one of the strong bull arguments” for stocks.

The market showed little reaction to a report from the Conference Board that its Consumer Confidence Index dropped to its lowest point since October 2005. The index fell to 87.3 for November, down almost 8 points from the revised 95.2 during October — and below analyst expectations for a reading of 91.5.

Staples Inc., the world’s largest office products supplier, said third-quarter profit fell 5 percent due to lower sales at stores open at least one year, or same-store sales, and costs from a legal settlement. Excluding the settlement charge, earnings topped Wall Street expectations — and shares surged $2.04, or 10.3 percent, to $21.81.

Activision Inc. jumped $2.21, or 11.7 percent, to $21.14 after the video game maker reported strong Thanksgiving weekend sales and raised its fiscal third-quarter and full-year profit and sales forecasts beyond Wall Street’s expectations. The company said sales of “Guitar Hero III: Legends of Rock” and “Call of Duty 4: Modern Warfare” were particularly brisk.

Pulte Homes Inc. shares slipped 33 cents to $8.82 after it said late Monday that housing demand remains weak and inventories high but the homebuilder reaffirmed its fourth-quarter forecast. The company expects to break even or earn as much as 10 cents per share.

The Russell 2000 index of smaller companies rose 2.64, or 0.36 percent, to 737.71.

Advancing issues outpaced decliners by nearly 3 to 2 on the New York Stock Exchange, where volume came to 1.07 billion shares.

Overseas stock markets ended mixed. Britain’s FTSE 100 fell 0.64 percent; Germany’s DAX index lost 0.48 percent and France’s CAC-40 declined 0.44 percent. In Asia, Japan’s Nikkei stock average closed up 0.58 percent. Hong Kong’s Hang Seng index fell 1.51 percent.

AP