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Investors bet the Federal Reserve will cut rates at its meeting on Wednesday - which helped offset lingering worries of a recession. Stocks bounced back from a lower opening to rally 176 points for the Dow. The S&P 500 and the Nasdaq gained 23 points each. Trading remained volatile as investor sentiment swung between caution and optimism. The caution came early after steep losses in Europe and Asia. It gathered momentum after a report showing 2007 was the worst year for New Home sales - on record. Investors hope the statistics are bad enough to encourage the Fed to slash key interest rates later this week. That optimism sparked a broad-based turnaround in the equity market. Some of the big movers in the Dow........ Caterpillar rose about 3-1/2 percent...Merck gained 3 percent. American Express jumped 4 percent ahead of mixed results. But not all Dow components fared as well. McDonald's saw a rise in fourth quarter profits..... revenues were better-than-expected.......and international sales were robust. But.......sales at home were flat in December, causing some concern. Shares of the world's largest restaurant chain - down 5.6 percent. Meanwhile, merger talk helped to offset recession jitters. The Chicago Mercantile Exchange is in talks to buy the New York Mercantile Exchange for about $11 billion. The tentative agreement would keep the NYMEX trading floors, like the oil pits, in New York. Shares of CME Holdings fell on the announcement. But shares of Nymex Holdings jumped 8.7 percent. In Paris, security was stepped up at the financial court. Jerome Kerviel, a former trader at Societe Generale, who is accused of taking part in the biggest fraud case in French banking history, made his defense before the court. The headline grabbing case involves fraud to the tune of over 7 billion dollars. As for European markets, banking stocks were a drag. The German Dax was little changed. The Paris CAC-40 and the London FTSE ended lower. Conway Gittens, Reuters.