Stocks rose on Thursday after the European Central Bank launched fresh liquidity measures to help banks weather the euro zone's debt crisis, easing one of the major concerns overhanging markets.
Anxiety that the region's lingering debt crisis could lead to a bank collapse has pressured equities and pushed the S&P 500 briefly into bear market territory earlier this week.
The ECB, wary of the region's fiscal woes spiraling into a global crisis, said it will revive 12-month loan operations and purchases of covered bonds, while it kept key interest rates unchanged at 1.50 percent.
The ECB's buying of covered bonds is intended to boost confidence in stocks and other risky assets such as commodities and high-yielding bonds.
John Brady, senior vice president at MF Global in Chicago, said the move could arrest an upward creep in interbank borrowing costs, seen as a proxy for stress in the banking sector. Risk assets have responded well thus far, he said.
Shares of Morgan Stanley, which have been hurt recently by fears about its exposure to European banks, rose 4.4 percent to $15.12. The S&P financial index gained 1.3 percent and was one of the best-performing sectors.
Thursday's advance marked the third up day for Wall Street with a more than 5 percent gain for the S&P 500 over the three days.
The Dow Jones industrial average rose 89.95 points, or 0.82 percent, to 11,029.90. The Standard & Poor's 500 Index gained 10.81 points, or 0.94 percent, to 1,154.84. The Nasdaq Composite Index added 31.22 points, or 1.27 percent, to 2,491.73.
The ECB's decision not to cut interest rates in the region and tough comments about the risks facing the economy by ECB President Jean-Claude Trichet left some investors disappointed and added to volatility early in the session.
The markets are more worried about disinflation and recession than they are about inflation, so the celebration would have been stronger if they reduced interest rates, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.
European Commission President Jose Manuel Barroso said the EU's top executive body proposed a coordinated recapitalization of banks amid the region's sovereign debt crisis. Officials said nothing was finalized.
Europe's worsening debt crisis could significantly damage the U.S. economy, Treasury Secretary Timothy Geithner warned, as he called on Europe to shore up its bailout fund to protect both governments and banks.
Yahoo Inc fell 4 percent to $15.28 after advancing late Wednesday. Microsoft Corp may make another bid for Yahoo, Reuters reported, citing sources. A deal between the two fell apart in 2008.
U.S.-listed shares of Research in Motion Ltd rose 3.3 percent to $24.37 on continued speculation the BlackBerry maker could be acquired.
Apple Inc gave up its earlier gains and slipped 0.3 percent to $377.10 a day after co-founder Steve Jobs, the driving force behind the creation of the iPod, iPhone and iPad, died of pancreatic cancer at the age of 56.
New claims for unemployment benefits rose less than expected last week, hinting at an improved labor market a day before the closely watched September non-farm payrolls report.
(Editing by Jan Paschal)