U.S. stocks dropped and then rallied morning, following a more than 700-point decline in the Dow Jones industrial average yesterday and a downturn on world markets this morning.

As of 9:40 a.m., the Dow was down 222.38 points to 8,355.53, but by 11:20 a.m., stocks were back up 45.96 points to 8,623,87. The Nasdaq composite index was up 26.38 points to 1,654.71 and the Standard & Poor’s 500 index was down 1.24 points to 906.60.

Markets could continue to be shaky this morning after the government released two new economic reports and Citigroup Inc. and Merrill Lynch & Co. Inc. reported more losses.

According to the Federal Reserve, production fell 2.8 percent in U.S. factories, mines and utilities in September, the most in nearly 34 years. Capacity utilization, which measures the proportion of plants in use, dropped to 76.4 percent from 78.7 percent in August, Bloomberg reported.

Meanwhile, the Labor Department said consumer prices remained unchanged in September after a 0.1 percent drop in August, the Associated Press reported. It was a nice surprise to economists, who had predicted a 0.1 percent increase. Still, prices increased 4.9 percent in the 12 months ended Sept. 30.

Citigroup Inc. reported today that it lost $2.8 billion, or 60 cents per share, in the third quarter, compared with a profit of $2.2 billion, or 44 cents per share, a year ago. Though the result was better than analysts’ forecast of a loss of 70 cents per share, the bank still had some worrisome news, with further write-downs of $4.4 billion, $4.9 billion in credit losses and a $3.9 billion charge to boost reserves in the quarter. The bank has written down the value of its investments by more than $50 billion in the past year.

Merrill Lynch & Co. Inc. reported a third-quarter net loss of $7.5 billion, or $5.58 per share, worse than analysts’ predictions that it would lose $5.18 per share, Reuters reported. The company said it plans to issue $10 billion in non-voting preferred stock and related warrants to the U.S. Treasury Department as part of the government’s plan to invest $250 billion in banks.

In better news, the key overnight bank-to-bank lending rate known as Libor fell to 1.94 percent from 2.14 percent, and the three-month Libor fell to 4.5 percent from 4.55 percent, a sign that lending between banks could expand, CNN Money reported. Libor is the daily average of what 16 banks charge other banks to lend money in London and affects most adjustable-rate mortgages. The rate soared to as high as 6.88 percent after the U.S. $700 billion bailout bill was signed into law.