Stocks turned higher Wednesday as oil prices fell and financials pared their losses, allowing investors to focus on an upbeat profit report from Hewlett-Packard Co.

Worries about the well-being of mortgage financiers Fannie Mae and Freddie Mac again dragged on the financial sector. Wall Street is nervous that the government-chartered companies will need a bailout from the Treasury Department, a move that could wipe out shareholders' equity.

But stocks, which fluctuated in the early going amid light volume, turned higher after Fannie Mae Chief Executive Daniel Mudd said the concerns about the company's financial position are overblown. Light volume can exacerbate the market's moves, and therefore its reaction to news, good or bad.

"They haven't offered anything and we haven't asked for anything," Mudd said, referring to the federal government in a public radio interview Wednesday morning. "I don't anticipate that they will do that."

Fannie Mae and Freddie Mac shares moved well off their lows but were still each down more than 10 percent.

In late morning trading, the Dow Jones industrial average rose 71.00, or 0.63 percent, to 11,419.55. Concerns about inflation and the financial sector led the Dow to post its worst two-day performance since late June on Monday and Tuesday with an overall drop of about 310 points.

Broader stock indicators also advanced Wednesday. The Standard & Poor's 500 index rose 6.86, or 0.54 percent, to 1,273.55, while the Nasdaq composite index rose 19.15, or 0.80 percent, to 2,403.51.

Oil, which has rebounded this week after dropping $35 from its July 11 high of $147.27, declined after the Energy Department said crude oil inventories rose much more than forecast last week.

Energy costs remain a concern because of their effect on overall inflation. Government reports last week and on Tuesday showed larger-than-expected increases in prices faced by consumers and companies.

Light, sweet crude fell 58 cents to $115.50 per barrel on the New York Mercantile Exchange after the Energy Department said crude oil inventories rose much more than forecast last week, but gasoline inventories shrank by more than expected.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.81 percent from 3.84 percent late Tuesday.

The dollar was mixed against other major currencies, while gold prices rose.

In corporate news, Fannie Mae fell 66 cents, or 11 percent, to $5.36, while Freddie Mac declined 43 cents, or 10 percent, to $3.74. The stocks had shown steeper losses ahead of Mudd's comments.

H-P rose $2.17, or 5 percent, to $45.86 after posting better-than-expected quarterly results. Its results indicated that some sectors like technology are faring better than the financial stocks that have been pummeled by the credit crisis.

Monsanto Co. said it agreed to sell its Posilac brand of cow hormones to drug maker Eli Lilly & Co. for at least $300 million. Monsanto rose $3.59, or 3.2 percent, to $116.45, while Eli Lilly slipped 15 cents to $47.65.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 358.5 million shares.

The Russell 2000 index of smaller companies rose 4.88, or 0.67 percent, to 734.91.

Overseas, Japan's Nikkei stock average fell 0.10 percent. In afternoon trading, Britain's FTSE 100 rose 0.38 percent, Germany's DAX index advanced 0.33 percent, and France's CAC-40 rose 0.41 percent.

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