Stocks rallied on Wednesday as financial shares extended their comeback for a second day, helped by remarks by a Federal Reserve official that raised hopes of an interest rate cut.

Financials were leading the Dow and S&P following Fed Vice Chairman Donald Kohn's comments. The group has struggled under tight credit conditions.

Kohn had mentioned that he sees a high risk to economic growth, and given that he's claiming the Fed has to be pragmatic, that could mean rate cuts in December, said Stephen Carl, principal and head of U.S. equity trading at The Williams Capital Group LP. That's fueling the market right now.

The Dow Jones industrial average was up 112.51 points, or 0.87 percent, at 13,070.95. The Standard & Poor's 500 Index was up 14.53 points, or 1.02 percent, at 1,442.76. The Nasdaq Composite Index was up 36.21 points, or 1.40 percent, at 2,617.01.

Shares of Citigroup, which helped kick off the rebound on Tuesday after getting a capital injection from Abu Dhabi, was the biggest contributor to the S&P's advance. Shares of insurer American International Group Inc was the biggest gainer on the Dow.

Citi shares rose 4.5 percent to $31.65 and AIG stock was up 5.2 percent to $57.37.

Kohn said he factored some tightening of credit from the financial turmoil into his policy decisions, but that recent turbulence may restrict credit more than previously thought.

Shares of Wells Fargo & Co, which fell in after-hours trading on Tuesday after announcing it would take a $1.4 billion charge in the fourth quarter for mortgage losses, were up sharply.

Likewise, shares of Freddie Mac, the second-biggest provider of money for U.S. home loans, bounced back from a decline after it cut its dividend by 50 percent and will sell preferred stock.

Freddie shares jumped more than 6 percent to $27.33. Wells Fargo stock was up 4.3 percent to $31.11.

Shares of online retailers were trading higher after data showed U.S. shoppers spent a record $733 million on Cyber Monday, up 21 percent from the same day a year ago, according to market research firm comScore.

Shares of were up 2 percent to $87.25. EBay stock gained 3 percent to $33.48.

(Editing by Kenneth Barry)