NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday afternoon as investors scooped up shares battered in the bloodletting that followed Congress' failure to pass a $700 billion bank rescue plan.

But credit markets remained frozen. Several closely-watched measures of bank lending fear hit all-time highs, as firms continued to hoard funds.

The Dow Jones industrial average (INDU) added 400 points before scaling back a bit, with 90 minutes left in the session, recovering some of the record 777 points lost the day before.

The Standard & Poor's 500 (SPX) index rose 4.6% and the Nasdaq composite (COMP) gained about 4.3%.

The advance was largely in response to the previous session's selloff, in particular the swell of sell orders that poured in near the close of the session, said Alan Lancz, director of Lancz Global.

"There was panic selling yesterday, so today you're seeing a reflex rally or a dead cat bounce," Lancz said.

He said the stock advance could also imply investors expect that some form of the government plan will pass, perhaps by the end of the week.

September 29, 2008 was a hasty day on Wall Street and across the world as news of the US Bailout failure shocked the markets. Once the dust settled and Investors realized that more than just cockroaches survived the "nuclear" meltdown happening to U.S. Banks; stocks rallied and made up much needed ground on September 30, 2008.

We are far past the "blame game" and solely focused on how a Government Bailout will bring stability to our ailing Financial Sector. Confidence in the U.S. Economy is paramount to bringing about a strong finish to an otherwise dismal year for the U.S.