U.S. stocks rose for a second day on Thursday after Federal Reserve Chairman Ben Bernanke pledged to further cut interest rates and on news that Bank of America is reported to buy struggling mortgage lender Countrywide Financial Corp.

Countrywide climbed the most in at least 25 years, gaining 51 percent to $7.76, after a source familiar with the matter told the Wall Street Journal the U.S. No. 2 bank is in advanced talks to takeover the top mortgage lender.

JPMorgan Chase & Co., Wells Fargo & Co., KBW Mortgage Finance and Citigroup Inc. led financial firms to the biggest rally in a month as investors concluded the Fed would aggressively lower interest rates at its end-of-month policy-setting meeting in January by a half point.

The Standard & Poor's 500 Index added 11.20, or 0.8 percent, to 1,420.33 at the end of trade in New York after earlier falling by 1 percent. The Dow Jones Industrial Average gained 117.78, or 0.9 percent, to 12,853.09. The Nasdaq Composite Index added 13.97, or 0.6 percent, to 2,488.52. Five stocks rose for every two that fell on the New York Stock Exchange.

Rumors of a Countrywide bankruptcy earlier in the week caused the company's shares to plunge, sending the stock to a low of $4.43 on Wednesday, falling 39 percent. While shares of Bank of America slipped 1.45 percent to $39.30. Bank of America bolstered Countrywide last August by making a $2 billion investment in the lender. The shares bought is convertible into a stake of around 16 percent.

Almost $100 billion in losses tied to subprime mortgages sent bank shares down 21 percent last year, prompting the Fed to cut its benchmark lending rate three times since September.

Goldman Sachs Group Inc., the biggest securities firm, increased $5.16 to $196.91. JPMorgan, the third-biggest U.S. bank, rose $1.07 to $41.33. The KBW Mortgage Finance index rose $1.05 to $23.85. Wells Fargo, the country's second-largest mortgage lender, added 87 cents to $27.91. Citigroup, the nation's biggest bank by assets, added 62 cents to $28.11.

Bernanke addressed the country's economic state in Washington in his first speech since the Fed cut its target rate for overnight bank lending by 0.25 percent to 4.25 percent last month. The Fed's decision will be announced at the Federal Open Market Committee meeting on January 29-30.