Stocks jumped at the open on Thursday after China's central bank cut bank lending and deposit rates, fueling hopes of simultaneous action to aid a flagging global economy.

The surprise move by China's central bank to cut benchmark interest rates by 25 basis points to shore up slackening economic growth comes a day after hopes of more stimulus by central banks drove stock indexes up more than 2 percent in a sharp turnaround from recent heavy losses.

The rate cut in the world's No. 2 economy had a sudden and dramatic impact on U.S. companies linked to China's commodity-hungry industrial complex. U.S. Steel Corp jumped 4 percent, and miner Freeport-McMoRan Copper & Gold Inc jumped 2 percent.

The dominant story obviously is the announcement of the cut in interest rates out of China. We are probably going to continue yesterday's rally focused on materials, energy, the areas in the U.S. I'd expect to benefit the most from a strengthening Chinese economy, said Peter Jankovskis, co-chief investment officer at Oakbrook Investments in Lisle, Illinois.

At 10 a.m. Federal Reserve Chairman Ben Bernanke will testify before a congressional committee. Investors will parse his words closely after his No. 2, Janet Yellen, said the Fed was ready to support the economy.

The Dow Jones industrial average <.DJI> rose 131.16 points, or 1.06 percent, at 12,545.95. The Standard & Poor's 500 Index <.SPX> added 13.40 points, or 1.02 percent, at 1,328.53. The Nasdaq Composite Index <.IXIC> gained 26.23 points, or 0.92 percent, at 2,870.95.

Stocks jumped more than 2 percent on Wednesday, giving the S&P 500 its best day since December, as talk of a rescue of Spain's troubled banks and hopes for more monetary stimulus sparked a rebound from recent selling.

After the S&P 500's 6-percent fall in May, and with the index below its 200-day moving average, the market was ripe for a rebound, analysts said. The index has reversed sharply above that closely watched level.

We were also flirting with the low end of the trading band, said Gordon Charlop, a managing director at Rosenblatt Securities in New York. The S&P bounced up from the 1,290 level, and this is something that kind of dovetails with the technical rally that we might have seen anyway, said Charlop.

European stocks jumped nearly 2 percent in morning trade, adding to the previous session's sharp rally, following the China rate cut and as investors bet policymakers in Europe could soon unveil measures to prop up ailing Spanish banks. <.EU>

Even though Spain has not yet requested assistance and is resisting being placed under international supervision, Germany and European Union officials are urgently exploring ways to rescue the country's banking sector, sources said.

Shares in Navistar International Corp plunged 21.8 percent to $21.89 after it posted a second-quarter loss as a warranty reserve to repair early 2010 and 2011 vehicles drove up costs, and the truck maker cut its full-year earnings outlook.

Health insurer Molina Healthcare Inc recalled its 2012 earnings guidance, citing uncertainties regarding medical costs in Texas, sending its shares down about 30 percent to $18.03.

(Additional Reporting By Rodrigo Campos; Editing by Chizu Nomiyama and Padraic Cassidy)