Stocks rose sharply on Tuesday as financials led a broad run-up from 12-year lows after reassurance from Citigroup about its performance, while investors turned hopeful about efforts to stem the economic slide.

According to a memo from Citigroup Chief Executive Vikram Pandit obtained by Reuters, the beleaguered bank was profitable in the first two months of 2009 and is confident about its capital strength after tough internal stress tests.

Shares of Citigroup, in which the government recently took a large common equity stake to shore it up, jumped 23.8 percent to $1.31, while shares of Bank of America gained 25 percent to $4.68. Wells Fargo climbed 10.5 percent to $11.03, as the KBW Bank index <.BKX> advanced nearly 9 percent.

You're getting news from companies that their business isn't so bad right now. In addition, the administration is clearly getting the message that they have to restore confidence, said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago.

Pandit's comments that Citigroup's quarter is off to a good start might motivate you to cover your short positions if you are short financials, Kuby added, referring to the unwinding of bets that stocks would continue to fall.

The Dow Jones industrial average <.DJI> shot up 258.62 points, or 3.95 percent, to 6,805.67. The Standard & Poor's 500 Index <.SPX> advanced 29.58 points, or 4.37 percent, to 706.11. The Nasdaq Composite Index <.IXIC> climbed 60.16 points, or 4.74 percent, to 1,328.80.

Standouts also included technology shares as a jump in shares of bellwethers like Apple Inc halted a 3-day sell-off in the sector. Shares of the iPod maker, up almost 5 percent to $87.00, were the Nasdaq's top boost.

JPMorgan led the Dow, with a 15 percent jump to $18.28. All 30 Dow stocks were in positive territory.

Sentiment was also buoyed by comments from U.S. Treasury Secretary Timothy Geithner to Reuters late on Monday that the United States has taken more action in recent weeks to tackle its economic problems than other countries have done in years.

Also bolstering optimism on the financial sector were comments to the Washington Post by Sheila Bair, head of the Federal Deposit Insurance Corp, that the government's plan to strip banks of money-losing assets would restore confidence in the banking system.

But even with the strong run-up, the market's biggest test is whether it can sustain the advance throughout the session and in the days ahead as investors look for catalysts to propel the market off 12-year lows.

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.

(Editing by James Dalgleish)