North American stocks see-sawed Tuesday before ending with a blistering rally after the U.S. Federal Reserve acknowledged slowing economic growth and promised to keep interest rates low until 2013, but did not promise to inject more cash into the American economy.

In Toronto, the S&P/TSX composite index closed up 437.1 points at its high of 12,106.1, on a day when its gain shrank to as little as six points. The main Toronto index had fallen almost 14 per cent from July 22 to Monday, reflecting a lack of confidence that political leaders and central bankers can manage Europe's debt crisis and mounting expectations of the U.S. going back into recession.

In New York, the Dow Jones industrial average finished with a gain of 429.92 points, or 3.98 per cent, at 11,239.77, also at its high of the day.

The Nasdaq rose 124.83 points, or 5.29 per cent, to 2,482.52 and the broader S&P 500 was up 53.07 points, or 4.74 per cent, to 1,172.53.

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Prime Minister Stephen Harper, on a trade mission in Brazil Tuesday, dismissed the gyrations in the markets. The CBC's Terry Milewski, who is travelling with the prime minister, reported Harper told a business roundtable in Sao Paulo that "we put too much emphasis on this stuff." Instead, he said, governments should concentrate on growing trade.

The Canadian dollar was up 1.24 cents at 102.16 cents US, after briefly trading below parity with the greenback — dipping as low as 99.95 cents US — earlier in the day.

The currency has lost about five cents in the past two weeks as traders have sought safety in U.S. treasury bonds.

December gold closed up $29.80 US an ounce at $1,743 US.

S&P/TSX 1-month chart

September oil finished down $2.01 to $79.30 US a barrel. In overseas trading earlier Tuesday, it had fallen as low as $75.71, its lowest since September 2010.

In Europe, the FTSE 100 index of leading British shares closed up 1.8 per cent while France's CAC-40 rose 1.6 per cent and Germany's DAX finished 0.1 per cent lower.

Asian markets retreated overnight, led by Hong Kong's Hang Seng, which tumbled 5.7 per cent. Other markets fell too, including Japan's Nikkei 225 stock average, which ended 1.7 per cent lower while China's main market in Shanghai fared moderately better, closing flat.

Traders also assessed some disappointing economic data from China overnight. Industrial production rose 14 per cent year-over-year in July, retail sales climbed 17.2 per cent and fixed asset investment was up 25.4 per cent in the first seven months of the year.

These figures were below expectations and represented a slowing from the prior month but "despite the relatively soft data, these figures are still consistent with solid growth in China, and suggest a soft landing scenario remains intact," said BMO Capital Markets senior economist Benjamin Reitzes.

The recovery in stocks has come after many markets officially entered bear market territory — meaning they have fallen by over 20 per cent since their peak — as investors looked for relatively safer assets to park their cash, such as gold and the Swiss franc.

The other major worry in the markets remains Europe's debt crisis and here again there are signs that the recent stresses may be easing, albeit as a result of an intervention by the European Central Bank.

The ECB stepped in Monday and bought billions of euros worth of bonds. The move helped to lower yields on Spanish and Italian bonds.

Those yields fell a bit more Tuesday. The yield on Spain's 10-year bonds has dropped 0.19 percentage points to 4.96 per cent while the Italian equivalent declined 0.17 percentage points to 5.06 per cent.