The ECB's massive 16-day tender boosted investors' optimism that the world's central banks may help bring back demand to the struggling areas of the credit market. The Bank of England also said it will offer additional reserves to lenders Tuesday, after the U.S. Federal Reserve on Monday conducted a $20 billion auction of 28-day credit.
The Dow Jones industrials had dropped 4 percent over the past week since the Fed's decision last Tuesday to lower interest rates by a quarter point, less than many investors hoped. Wall Street has been doubting the commitment of the world's central banks to reversing credit tightness.
"We've had a rough, rough ride since last Tuesday," said Ryan Detrick, strategist at Schaeffer's Investment Research. "But this is one of the biggest injections we've seen. Five hundred billion -- that's definitely trying to fix things."
Few are calling the end of the credit crunch yet, though. "The banks don't trust each other, so they don't want to lend to each other," Detrick said.
Meanwhile, Wall Street was relieved to see better-than-expected earnings from the investment bank Goldman Sachs Group Inc. and the electronics retailer Best Buy Co. However, the two companies' stocks fell due to caution about performance in 2008.
In mid-morning trading, the Dow rose 26.17, or 0.20 percent, to 13,193.37.
Broader stock indicators also advanced. The Standard & Poor's 500 index gained 6.80, or 0.47 percent, to 1,452.70, and the Nasdaq composite index advanced 11.64, or 0.45 percent, to 2,586.10.
Government bonds were little changed. The yield on the 10-year Treasury note, which moves opposite its price, slipped to 4.14 percent from 4.15 percent late Monday.
The dollar was higher against other major currencies, while gold prices rose.
Light, sweet crude rose $1.52 to $92.15 a barrel in premarket trading on the New York Mercantile Exchange.
Goldman fell $5.77, or 2.8 percent, to $202.86 in early trading, while Best Buy fell $1.40, or 2.8 percent, to $49.74.
All three major stock indexes on Monday lost at least 1 percent due to ongoing worries about the possibility that prices will keeping rising despite a weakening economy.
The Commerce Department said Tuesday that housing starts and building permits fell, bolstering investors' belief that the economy will continue to feel the housing market's drag in the new year. Housing starts fell 3.7 percent to the lowest rate in more than 16 years, while building permits fell 1.5 percent to the lowest rate in more than 14 years.
The Fed revealed a plan Tuesday to give people taking out home mortgages new protections against questionable lending practices -- particularly to subprime borrowers, whose inability to keep up with their loan payments has led to this year's spike in foreclosures and credit crunch.
Overseas, Japan's Nikkei stock average fell 0.27 percent, and Hong Kong's Hang Seng index rose 0.51 percent. Britain's FTSE 100 rose 0.73 percent, Germany's DAX index rose 1.18 percent and France's CAC-40 rose 0.87 percent.