NEW YORK (AP) – Stocks rose Tuesday as oil prices fell sharply on reports that the Gulf Coast and its oil facilities have been spared heavy damage from Hurricane Gustav. Trading was erratic, though, and the Dow Jones industrial average gave up half its earlier advance to trade up about 110 points.

Light, sweet crude fell $6.24 to $109.22 a barrel on the New York Mercantile Exchange, easing Wall Street’s concerns not only about Gustav, but also about inflation’s impact on the broader economy.

The market’s optimism was also boosted by news that Korea Development Bank is in talks about taking part in a possible acquisition of Lehman Brothers Holdings Inc. Such a move could allay some of Wall Street’s worries about the troubled financial sector.

But trading was choppy, particularly as the stocks of oil and metals companies acted as a drag on the broader market.

Bill Dwyer, chief investment officer at MTB Investment Advisors in Baltimore, said the pointed reactions of the energy and stock markets Tuesday illustrate the overall uncertainty about the economy.

“It just shows you how unstable the market is based on the perception of the macro economic outlook. It changes daily. There isn’t a consistent viewpoint of what is actually happening in the economy,” he said, noting that stocks fell sharply Friday after economic figures and a weak report from the technology sector unnerved investors.

Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher, agreed, and said investors appear to be making quick, day-to-day profits in the stock market, as opposed to committing to a long-term strategy.

“We’ve had this manic tape for some time,” Dow said. “By and large, it’s just a market that’s victim to whatever the news of the day is, without a whole lot of conviction.”

In early afternoon trading, the Dow rose 111.71, or 0.97 percent, to 11,655.26, after rising more than 246 points in the early going. The Dow lost 171 points Friday.

Broader stock indicators also traded sharply higher but came off their highs. The Standard & Poor’s 500 index rose 4.22, or 0.33 percent, to 1,287.05, and the Nasdaq composite index rose 6.19, or 0.26 percent, to 2,373.71.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.75 percent from 3.82 percent late Friday. The dollar rose against most other major currencies, while gold prices fell sharply.

Investors showed little reaction to a report that U.S. manufacturing activity contracted slightly in August, as expected, and that inflation slowed. The Institute for Supply Management, a trade group of purchasing executives, said its index on manufacturing activity fell to 49.9 in August from 50 in July. Wall Street had expected a reading of 49.9, according to the median estimate of economists polled by Thomson Financial/IFR. A reading below 50 indicates contraction. The ISM also found that inflation lessened.

Lehman Brothers rose 20 cents to $16.29 after the governor of the state-owned Korea Development Bank said discussions were under way to set up a consortium with private banks to acquire Lehman. The comments follow weeks of speculation that the investment bank could be bought as it struggles amid tightness in the credit markets.

Investors remain extremely skittish about financial services companies, however, given the billions of dollars in risky loans and securities that remain on their books.

“The one problem with financials is that maybe the Street has a good handle on subprime, but they do not have a good handle on commercial or industrial lending. To say that it’s the bottom would be a pretty big leap of faith, I think,” said RBC’s Dow.

The drop in oil prices sent stocks in sectors like airlines higher. American Airlines parent AMR Corp. jumped $1.50, or 14.5 percent, to $11.83, Delta Air Lines Inc. rose $1.34, or 16.5 percent, to $9.47, while JetBlue Airways Corp. rose 48 cents, or 7.9 percent, to $6.56.

Energy names fell as oil dropped. Exxon Mobil Corp. fell $1.75, or 2.2 percent, to $78.26, while Chevron Corp. declined $2.52, or 2.9 percent, to $83.80.

In other corporate news, technology shares advanced after Google Inc. said it is releasing its own Internet browser to counter Microsoft Corp.’s Internet Explorer. Google rose $14.08, or 3 percent, to $477.37, while Microsoft rose 26 cents to $27.55.

Bank of America Corp. jumped $1.63, or 5.3 percent, to $32.77 and was the biggest gainer among the 30 stocks that make up the Dow industrials after a Goldman Sachs & Co. analyst assumed coverage of the bank with a “Buy” rating, citing potential for earnings growth.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 608.4 million shares.

The Russell 2000 index of smaller companies rose 2.80, or 0.38 percent, to 742.30.

Overseas, Japan’s Nikkei stock fell 1.75 percent. Britain’s FTSE 100 rose 0.32 percent, Germany’s DAX index rose 1.51 percent, and France’s CAC-40 advanced 1.50 percent.

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