U.S stocks rose more than 3 percent on Wednesday as major central banks acted jointly to add liquidity to the global financial system, boosting appetite for risky assets.
All ten S&P sectors were sharply higher, with the energy and materials groups approaching gains of 5 percent.
The U.S. Federal Reserve, the European Central Bank as well as the central banks of Canada, Britain, Japan and Switzerland agreed to lower the cost of existing dollar swap lines -- or reducing the cost of temporary dollar loans -- to banks by a half percentage point, starting December 5.
The central banks' actions was intended to ensure that starved European banks facing a credit crunch have enough funding as the euro zone's sovereign debt crisis worsens.
Also, China unexpectedly cut bank reserve requirements in hopes of boosting an economy running at its weakest pace since 2009.
Further encouraging investors, the latest economic data suggested the U.S. economy was moving more solidly toward recovery. The U.S. private sector added the most jobs in nearly a year in November, while business activity in the U.S. Midwest grew faster than expected in November surged.
Other data showed pending sales of existing U.S. homes surged in October by the most in nearly a year.
There's a perfect storm of bullishness. PMI came out better than expected, plus what happened overseas, and ADP was well above consensus, said Donald Selkin, chief market strategist at National Securities in New York, with about $3 billion in assets under management.
With this turnaround, we're right back in the same range we were a few weeks ago. For this rally to continue it will be incumbent on the data to keep coming out OK. I don't think it'll be up, up and away here, but I believe we won't break the bottom we had in October.
The Dow Jones industrial average .DJI soared 420.35 points, or 3.64 percent, at 11,975.98. The Standard & Poor's 500 Index .SPX jumped 42.98 points, or 3.60 percent, at 1,238.17. The Nasdaq Composite Index .IXIC advanced 89.46 points, or 3.56 percent, at 2,604.97.
Financial stocks rose after the central banks' action. Bank of America Corp (BAC) was up 4.9 percent to $5.32, while JPMorgan Chase & Co (JPM.) added 6.4 percent to $30.39, and Citigroup Inc (C) rose 5.1 percent to $26.55.
Still, financial shares could be pressured after Standard & Poor's on Tuesday reduced its credit ratings on 15 big banks, mostly in Europe and the United States as part of a sweeping overhaul of its ratings criteria. JPMorgan Chase, Bank of America, Citigroup, Wells Fargo & Co (WFC), Goldman Sachs Group Inc (GS) Morgan Stanley (MS.N) each had their rating reduced by one notch each.