U.S. stocks posted their best day in four months on Tuesday after Citigroup said it was profitable in the first two months of 2009.

The market also got a boost, lifting shares off 12-year lows, after a key lawmaker said he expected the reinstatement of a rule that hinders short-selling.

Financials rose 15 percent after Citigroup Inc Chief Executive Vikram Pandit also stated in a memo to staff of what was once the largest U.S. bank that he was confident about its capital strength.

Adding to the positive tone, U.S. Rep. Barney Frank, chairman of the U.S. House Financial Services Committee, said he is hopeful the Securities and Exchange Commission will reimpose the uptick rule in about a month.

The rule slows the pace of short selling, or bets that a stock will fall, and could help calm volatile markets.

There's been significant short covering in the financials today as a result of comments from Citi's chairman lending a stronger tone to the financials overall, said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

The uptick rule possibly going back into effect would also be a significant positive for the financials. It would make it harder to short stocks, he added.

The Dow Jones industrial average <.DJI> gained 379.44 points, or 5.80 percent, to 6,926.49. The Standard & Poor's 500 Index <.SPX> climbed 43.07 points, or 6.37 percent, to 719.60. The Nasdaq Composite Index <.IXIC> jumped 89.64 points, or 7.07 percent, to 1,358.28.

According to Reuters data, the benchmark S&P 500 went into Tuesday's session at its most oversold condition in five months, when measured by its 50-day relative strength index.

Rep. Frank also echoed earlier comments from Federal Reserve Chairman Ben Bernanke, who called for improvements in mark-to-market regulations, rather than suspending them. Many have attributed these accounting rules for increasing losses and writedowns on bank balance sheets.

The last time the S&P rose this much was after the U.S. government decided to rescue Citigroup for the first time in late November, when it agreed to pump $20 billion of new capital into the bank to avert a collapse that could have crippled the world's financial system.

Shares of Citigroup, in which the government more recently took a large common equity stake to help shore it up, jumped 38.1 percent to $1.45. Citi's stock has fallen about 78 percent year to date.

Other bank shares rallied, with Bank of America up nearly 28 percent at $4.79, and Wells Fargo up 18.5 percent at $11.81.

JPMorgan was the Dow's top performer with nearly a 23 percent jump to $19.50. All 30 Dow components were in positive territory.

The advance by financial shares marks a turnaround in investor sentiment after the sector has been hammered recently as banks' credit losses swelled.

Other standouts included technology shares, with a jump in bellwethers like Apple Inc halting a three-day sell-off in the sector. The iPhone maker's stock, up 6.6 percent at $88.63, provided the biggest boost to the Nasdaq 100 <.NDX>. Microsoft gained 8.8 percent to $16.48 while Qualcomm added 7.2 percent to $35.36.

Highlighting the broad-based rally, the Dow Jones Home Construction index <.DJUSHB> climbed 15 percent, led by Pulte Homes
and D.R. Horton Inc .

Trading was heavy on the New York Stock Exchange, with about 2.19 billion shares changing hands, above last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.39 billion shares traded, above last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by

a ratio of about 14 to 1, while on the Nasdaq, about five stocks rose for every one that fell.

(Additional reporting by Rodrgo Campos; Editing by Jan Paschal)