Trading in financial stocks was highly volatile on Tuesday, as the market initially plunged before staging a recovery that gathered steam after the Securities and Exchange Commission announced its review of naked short selling.

Credit insurance on financials tracked a similar pattern. The S&P financials sector fell as much as 5.7 per cent, then rallied to finish up 2.3 per cent on the day before sellers re-emerged. A drop in oil prices also brightened investors’ outlook on bank stocks.