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The stock market regained about 40% of yesterday’s massive 8.9% sell-off. Stocks were in positive ground after General Electric (GE 17.61, +2.11) gave a better-than-feared business update and then surged to session highs in the final minutes of trade after General Motors (GM 4.85, +0.26) outlined its plan for government aid.

The S&P 500 rose 4.0% in a volatile session, with all ten sectors posting a gain. Volume was slightly above average and on pace with Monday’s level.

General Motors and Ford outlined to Congress how the automakers would use $25 billion in loans from the government. Ford asked for a $9 billion loan, saying it will focus on more fuel efficient vehicles and downsize its dealer-base, among other initiatives, to reach at least breakeven by 2011. GM requested $12 billion in government term loans and a $6 billion line of credit in case the downturn persists. GM plans to start repaying the loans as early as 2011.

November U.S. auto sales results were dismal. On year-over-year basis, sales plunged 41% at GM, 31% at Ford, 47% at Chrysler and 34% at Toyota (TM 62.00, +3.44).

General Electric was the best-performing stock. The conglomerate said it expects fourth quarter earnings on the low end of its previous guidance, but this was better than many analysts had expected. GE also said it will keep its dividend unchanged in 2009. At Monday’s closing price, GE’s dividend represented a hefty yield of 8%.

The financial sector (+7.9%) outperformed following its 17% plunge in the previous session. Goldman Sachs (GS 65.10, -0.66), however, was a notable underperformer. The Wall Street Journal reported that Goldman is likely to report a net loss of as much as $2 billion in its later quarter, which would be five times worse than the consensus estimate.

In earnings news, Sears Holdings (SHLD 36.03, +4.19) and Beazer Homes (BZH 1.37, -0.13) posted larger-than-expected third quarter losses. Staples (SPLS 16.32, +1.20) reported a slightly higher-than-expected profit.

Separately, The Federal Reserve said due to the strains in the financial markets it will extend three liquidity facilities through April 30, 2009. The facilities aim to increase liquidity for asset backed commercial paper and financial firms.

Despite the gains in stocks, Treasuries advanced as investors speculated that the Federal Reserve will buy longer-term Treasuries. The 10-year note rose 15 ticks to send its yield down to 2.67%.

Oil prices had a volatile session, eventually falling 3.8% to $47.42, which is the lowest level since May 2005.

A sharp sell-off in the stock market Monday snapped a five-session winning streak as inventors digested a weak manufacturing survey, the possibility that the Federal Reserve may buy longer-term Treasuries, word that the U.S. economy officially entered recession in December 2007 and concerns regarding financials.

The S&P 500 dropped 8.9%, settling near its lows following a late session surge surge in selling interest. Volume was slightly above the year-to-date average. The decline was broad-based, with 498 of the components within the S&P 500 posting a decline.

The financial sector (-17.0%) got hit the hardest. Oppenheimer analyst Meredith Whitney said the U.S. credit card industry may cut credit lines by well over $2 trillion, or 45%, over the next 18 months, citing risk aversion, funding challenges and regulatory and accounting changes. Whitney’s opinion is well respected after she correctly predicted much of the turmoil on Wall Street.

Weakness in commodities (-3.6%), with oil dropping 9.5%, weighed on the energy (-10.3%) and material sectors (-9.8%).

In economic news, Federal Reserve Chairman Ben Bernanke said the U.S. economy remains under stress despite the efforts of the Fed and other Policy makers. To help alleviate the stress, he laid out possible further policy actions, including lowering the fed funds rate, purchasing longer-term Treasuries or agency securities on the open market.

The latter comment, along with a flight-to-safety bid, sparked a rally in Treasuries, with yields of both the 10-year note and 30-year bond dropping too record lows. The 10-year note rose 48 ticks to yield only 2.75% and the 30-year bond rose more than four points to yield 3.23%.

The November ISM Index, a national manufacturing survey, declined to 36.2 from the October reading of 38.9. This was worse than the consensus estimate of 37.0 and, represents the most contraction in U.S. manufacturing since 1982. The survey shows continued signs of dropping prices, with the ISM Prices Paid Index declining to 25.5 from October’s reading of 37.0. The industrials sector dropped 8.5%.

The National Bureau of Economic Research announced that December 2007 marks the end of a 73 month expansion in the U.S. economy and the beginning of a recession. Assuming the U.S. is still in a recession, the duration of decline the peak to trough decline will surpass the recessions of 2001 (8 months) and 1990/1991 (8 months), marking the longest recession since 1981/1982 (16 months).

Black Friday sales were better-than-feared.  Depending on the research firm, sales were up between 2% and 7% year-over-year. However, there are concerns that the sales came at the expense of steep discounts and buying has since tapered off. Retailer stocks dropped 9.3%.

In the end, the S&P 500’s decline of 80 points erased nearly all of last week’s 96 point gain. The index is up 10.2% from its multi-year low reached on Nov. 21, and down 44.4% this year.