Stocks surged on Wednesday as major central banks around the world acted jointly to add liquidity to the global financial system, sparking a rally in risk assets such as equities and commodities.
The 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.
Financial and other economically sensitive stocks jumped after the action. Bank of America Corp
A lot of short-term momentum players have participated in this move, said Peter Kenny, a trader at Knight Capital in Jersey City, New Jersey. There has been quite a bit of short-term high (volume) trading going on.
But he added: The nature of the move higher and the degree to which it is likely to continue is really going to be showcased by how well European markets, and particularly debt markets, respond to this coordinated effort.
The Dow Jones industrial average <.DJI> jumped 422.58 points, or 3.66 percent, to 11,978.21. The Standard & Poor's 500 Index <.SPX> rose 42.65 points, or 3.57 percent, to 1,237.84. The Nasdaq Composite Index <.IXIC> put on 89.51 points, or 3.56 percent, to 2,605.02.
Copper rose more than 5 percent to a two-week high while U.S. oil futures jumped nearly 1 percent, helped also by a selloff in the dollar, which followed the renewed appetite for risk.
The S&P materials sector <.GSPM> was the strongest gainer, rising 4.5 percent. Freeport McMoRan Copper & Gold Inc
The central banks' actions was intended to ensure that European banks, facing a credit crunch, have enough funding amid the euro zone's worsening sovereign debt crisis.
The moves came on the heels of an unexpected cut in bank reserve requirements in China, intended to boost an economy running at its weakest pace since 2009.
Further encouraging investors, the latest U.S. 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.
Another report showed pending sales of existing U.S. homes surged in October in its biggest monthly gain since November 2010.
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.
Standard & Poor's move to cut credit ratings of 15 big banks, mostly in Europe and the United States, late Tuesday was all but forgotten.
The reduction affected JPMorgan Chase, Bank of America, Citigroup Inc
About 10 stocks rose for every one that fell on the New York Stock Exchange. Volume on the NYSE, the Amex, and Nasdaq was above average at almost 4 billion shares at midday.
(Editing by Jeffrey Benkoe)