NEW YORK (AP) -- Wall Street began the second quarter with a big rally Tuesday as investors rushed back into stocks, optimistic that the worst of the credit crisis has passed and that the economy is faring better than expected. The Dow Jones industrials surged nearly 400 points, and all the major indexes were up more than 3 percent.

The Wall Street Journal says the crisis is fading.

The rally on Tuesday was the best second-quarter opening day since 1938. The recent volatility, however, has left some analysts weary. "Nobody's kidding themselves," Mr. Yardeni said. "The financial crisis isn't over. But the Fed and Congress and other financial regulators have made it very clear that they are going to use all the powers available to them to avoid a financial meltdown and end this credit crisis."

Investors are also keenly aware that the Labor Department's employment report, due out Friday morning, could damp any optimism. Economists are predicting that payrolls shrank by 50,000 jobs in March, which may send stocks down.

But Tuesday brought some good news on the state of the nation's industry. A closely watched manufacturing report, released by the private Institute for Supply Management, ticked up last month, though business is still shrinking within the industry.

Elevated export orders continue to offset flagging domestic demand, but manufacturers are feeling the effects of inflation: a gauge of prices paid for production materials reached its highest level in nearly six years.

The institute's index edged up slightly to a reading of 48.6 in March, from 48.3 in February, slightly better than expected. Readings below 50 signal contraction.

Spending on construction projects also improved, as overall spending fell 0.3 percent in February after declining 1 percent in January, the Commerce Department said Tuesday. Government-financed building is increasing even as private residential construction remains in a slump.

Investors were also buoyed by a drop in commodity prices, which have reached record levels in recent weeks. The declines in prices for oil, gold and wheat could translate to cheaper prices for consumers.

Federal Reserve Chairman Ben S. Bernanke says a recession is possible. However, he expects a rebound if a recession happens by years end.

WASHINGTON -- Federal Reserve Chairman Ben S. Bernanke acknowledged Wednesday that a recession was possible, but he predicted a rebound by year's end, declaring in effect that the central bank had done its job and it now was up to Congress to tackle the still-deepening housing crisis.

Bernanke also signaled that the Fed was unlikely to continue to cut interest rates aggressively. And he made clear that, although housing was "at the center" of the country's economic woes, preventing foreclosures and helping struggling mortgage holders were outside the Fed's area of responsibility.

Bernanke's remarks before the Joint Economic Committee of Congress appeared to lend the weight of his position to congressional leaders who are pushing for quick action to forestall foreclosures, restructure the mortgage market and speed the refinancing of troubled loans.

"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," he said. And, after months of avoiding it, he used the word "recession," but only to concede that it was "possible." And he expressed optimism that the clouds would lift by the end of the year.

Bernanke also suggests that we need to invest in alternative energy sources and education. Let me start with education first. We are not making near enough use of the Internet. There is a very low cost way of delivering education. More effort needs to go in that direction.

Alternative energy is going gang busters. Lots of effort in that field. Wind is booming. Solar may be on the verge of some huge cost breakthroughs and fusion energy may be just around the corner. For instance Bussard Fusion Reactor Research is progressing nicely. If the research results prove positive, working fusion power plants could be as little as three to five years away.

And that other 3 AM call? That is looking good too. Military Operations are continuing in Basra. Despite every thing you heard about the Iraqi government caving to Al Sadr, it appears that the Iraqi Government was appeasing Al Sadr's troops with words while continuing to kill them with bullets. That has got to hurt.