Stocks rose four percent on Thursday as the market bounced back from its recent pummeling and investors cheered results from Cisco and U.S. jobless claims data.
Financials shares bounced back sharply after leading losses on Wednesday, with the S&P financial sector up seven percent.
Labor Department data showed new claims for unemployment benefits dropped to a four-month low last week, a dose of good news for an economy battered by a credit-rating downgrade and a spate of soft data in recent weeks.
The gains came a day after the major U.S. stock indexes slid more than four percent on fears about the French banking system's health and follow Monday's six percent drop on the S&P 500.
Analysts said bearish sentiment persists following last week's downgrade of the United States' credit rating by Standard and Poor's and debt problems in the euro zone.
"It's a bungee cord market. We've fallen off of a small bridge, the bungee cord bounced us up, and oscillations will diminish, but we're still bouncing around," said Fred Dickson, chief market strategist at D.A. Davidson & Co. Lake Oswego, Oregon.
He said investors are searching for a bottom in this correction. The S&P 500 is still down 14.2 percent since its April 29 high.
The CBOE Volatility Index ,VIX, a measure of Wall Street's anxiety, shed 9.7 percent but remained near levels not seen in over a year.
The Dow Jones industrial average was up 490.73 points, or 4.58 percent, at 11,210.67. The Standard & Poor's 500 Index was up 57.98 points, or 5.17 percent, at 1,178.74. The Nasdaq Composite Index was up 120.72 points, or 5.07 percent, at 2,501.77.
While indexes showed solid gains on Thursday, the S&P 500 has fallen for 11 of the past 14 sessions, indicating the selling pressure may not yet be exhausted.
European shares ended higher after French President Nicolas Sarkozy's office said he will meet with German Chancellor Angela Merkel next Tuesday to discuss euro-zone issues.
Cisco Systems Inc jumped 16.8 percent to $16.03 a day after it reported quarterly revenue and profits that topped scaled-back expectations. The S&P information technology sector index added 4.5 percent.