Stocks rose on Thursday as news the Obama administration may request more money to shore up banks added to optimism that Washington would not nationalize major banks.
Federal Reserve Chairman Ben Bernanke on Wednesday reinforced the Obama administration's pledge that a bank rescue would not involve seizure of major banks.
Optimism about the banks overshadowed another dose of fresh data that showed more weakness in the labor market. A report showed that although sales of newly built U.S. single-family homes slumped to a record low last month, the prior months drop was pared back, providing some relief to some investors.
A jump on energy shares also underpinned the market as oil prices headed higher.
The S&P financial index <.GSPF> rose nearly 6 percent.
It's not so much the economic numbers affecting the stock market, said Cary Leahey, economist at Decision Economics in New York.
Now it's any expectation that the banks will survive better than expected and the fact that the administration delivered just what the market wanted, which was government help, but not overt nationalization. That seems to be the magic wand for the stock market at the moment.
The Dow Jones industrial average <.DJI> gained 106.57 points, or 1.47 percent, to 7,377.46. The Standard & Poor's 500 Index <.SPX> shot up 11.67 points, or 1.53 percent, to 776.57. The Nasdaq Composite Index <.IXIC> added 11.91 points, or 0.84 percent, to 1,437.34.
The Obama administration has ordered the nation's biggest banks to undergo stress tests to check whether they could hold up if the economy deteriorated further.
(Additional reporting by Ellen Freilich)