Wall Street ended its worst January in eight years with a wild ride that was par for the course last month, recovering from a sharp drop early in the day as investors choked on more bad news on the credit front to finish the day with a gain of more than 200 points.

The Dow Jones industrials slid as low as 12,250 as investors digested the $2.3 billion loss reported by MBIA before rebounding more than 400 points after the bond insurer reassured the market that it will maintain its AAA-credit rating. After moving as high as 12,702, the Dow settled at 12,650.36, up 207.53. The S&P 500 rose 22.74 to 1,378.55 while Nasdaq finished up 40.86 at 2,389.86.

The rally left the Dow 4.5 percent lower for the month. It was the worst January since the widely watched market barometer retreated 4.8 percent in the opening month of 2000, when it went on to finish down 4.7 percent for the year.

January could have been a lot worse, given how bad the market was battered earlier in the month by concerns over subprime mortgages and the faltering economy. The index was off more than 12 percent when it hit an intraday 52-week low of 11,635 on Jan. 22. Since then, it has made up more than half of the lost ground, bolstered by two interest rate cuts by the Federal Reserve Board and talk of a $150 billion stimulus package on Capitol Hill.

"I'm going to give the Fed about 95 percent of that credit," said Carol R. Miller, manager of Federated Investors' Capital Appreciation Fund.

A portion of the rebound can be attributed to disciplined institutional investors rebalancing their portfolios, said Greg Melvin, chief investment officer of C.S. McKee, Downtown. The market's dramatic decline in the first half of January left pension funds and other large investors holding a smaller percentage of stocks than their portfolio guidelines called for, so they sold bonds and purchased stocks to put their holdings back in balance, he said.

But many investors, including professionals, were too scared by the barrage of bleak headlines to stick to their plan this month. That was evident from the triple-digit swings in stocks prices that were standard fare on Wall Street last month.

"It's been an extremely volatile month," said Ms. Miller. "The professionals get every bit as scared in a market like this."

Conventional wisdom among some market mavens is that the market's performance in January is a good indicator of how it will do for the year. But many investment managers don't buy that. They cite several reasons to be cautiously optimistic about the market, including the Fed's quick action on interest rates and election year politics.

"The first half will be lousy, but the second half is going to look pretty good," said Malcolm Polley, chief investment officer for Stewart Capital Advisors in Indiana, Pa.

The Fed's two rate cuts this month -- a surprise 0.75 percentage point cut Jan. 22 followed by a half-point reduction Wednesday -- gives people confidence the government is taking quick action to either avert a recession or shorten its duration, said John Frankola of Vista Investment Management of Pittsburgh. He said there are extra incentives to boost the economy because the White House and Congress are up for grabs in November.

"Everybody is in favor of getting the economy going this year," Mr. Frankola said, adding that the market usually performs well in the fourth year of the presidential election cycle.

Lower interest rates will not only stimulate the economy, they will make stocks more attractive. While many skittish investors fled the market for the safety of U.S. Treasury securities, the Fed's rate cuts reduce the yield on those safe havens. Mr. Melvin finds it impossible to be negative about stocks given the paltry returns that the safest of bonds offer, citing a yield of about 1.9 percent on one-month U.S. Treasury notes.

"Why would anyone own a 1.9 percent security? The answer is they're scared," Mr. Melvin said.

Years when rates on U.S. Treasury bills are lower than they were the previous year generally have been good years to invest in stocks, Mr. Frankola said. Between 1950 and 2006, the S&P 500 rose an average of 18 percent in years when T-bill rates fell, he said.

Investors who judge stock prices in comparison to earnings say the market is slightly undervalued.

"On a relative basis, stocks look much more attractive than bonds or cash," Mr. Polley said.

Their optimism is tempered by fears that the economy could slip into a recession, denting corporate earnings and exacerbating problems in the slumping housing market.

"There's no doubt this won't be the last tough month if we go into a recession," Ms. Miller cautioned. "If we avoid a recession, then the market is not overvalued and we'll get back to some good earnings."

It will take the market a quarter or two to wash out concerns over the subprime problem and the recession, said Daniel Henderson, president of Cookson, Pierce & Co., Downtown.

"We don't expect there to be any change in the market until there's more certainty," he said. "I don't think you're going to see a lot of that happen until the latter half of the year."