American stocks rose, helping the Standard & Poor’s 500 Index rebound from its steepest drop in seven years, as speculation American International Group Inc. would weather a funding shortage boosted financial shares in the last hour of trading.

Benchmark indexes crossed between gains and losses more than 25 times, and AIG pared most of a 74% decline, as investors weighed the fate of the largest American insurer after credit-market losses forced Lehman Brothers Holdings Inc. into bankruptcy. Merrill Lynch & Co. led a 6.2% rally in the S&P 500 Financial Index a day after the measure of banks, brokerages and insurers plunged the most since at least 1989.

“This is a market that’s not looking at fundamentals,” the chief investment strategist at the Hartford, Quincy Krosby, said. “It’s going back and forth based on rumor and headlines and it has temporarily divorced itself from fundamental analysis.”

America overcame declines that pushed down equity prices around the world, led by a 17% plunge in Russia’s Micex index, as overnight lending rates doubled and concern grew AIG would collapse. Each of the 10 main industry groups in the S&P 500 advanced except for telephone companies and utilities.

The S&P 500 plunged as much as 2% in the morning. Stocks recovered as speculation grew that the Fed would cut interest rates, only to lose those gains after the central bank left borrowing costs unchanged.

The last-hour rally came as federal regulators considered reversing a decision not to help AIG avoid collapse. People involved in the talks between AIG and the government said they are “cautiously optimistic,” said the person, who declined to be identified because negotiations are confidential.

About 1.2 billion shares of AIG changed hands, nearing WorldCom Inc.’s record single-day volume of 1.5 billion shares on July 1, 2002.