Stocks snapped back from a week-long selloff and posted the biggest one-day gains in several months.
"The market is feeling a lot better," said Stuart George, head of equity trading at Delaware Investments, in an interview with CNBC.com.
Although George says the market selloff isn't over, he was encouraged that institutional investors, and not just traders, were in the markets Tuesday.
"The mutual funds have been on the sidelines, but today it's a different story," George said. "It doesn't mean we're going to the moon but things are definitely better than where they were three days ago."
Tuesday's rally was led by a big upward moves in the financial and basic materials sectors, along with gains in technology and energy stocks.
The Nasdaq rose 1.9%, the S&P 500 gained more than 1.5% and the Dow Jones Industrial Average finished up 1.3%. It was the largest one-day rise for the Dow and S&P 500 since July 2006 and best daily performance for the Nasdaq since October 2006.
Helping the stock rally was the yen's decline against the dollar, easing fears that investors would unload stocks to pay back low-interest loans denominated in yen. This so-called carry trade, a financing tool used by hedge funds to speculate in stocks, has been one of the big factors in the market's sharp decline over the past week.
'Sigh of Relief Rally'
"It's a sigh-of-relief rally on the fact that the yen has stopped rallying," Arthur Cashin, managing director of U.S. floor operations, told CNBC.com. "The yen was driving a good deal of the selling, which was across asset classes. Oil, gold and various other commodities are also acting better."
In sharp contrast with Monday's trading, breadth was overwhelmingly positive, with advancing stocks outnumbering decliners by five to one on the New York Stock Exchange. All ten S&P 500 sectors closed higher.
"It's just a nice bounce, we were getting a little bit oversold," said Todd Leone, head of listed trading at Cowen and Company. "People are stepping in and buying the market."
Stocks in the News
Citigrouplaunched a $10.75 billion takeover bid for scandal-ridden Japanese brokerage Nikko Cordial in a deal designed to transform its business in the world's second-largest economy. Citigroup shares rose 2.7% while rivals Bank of America and JP Morgan Chase also gained.
Google shares climbed after the Internet search giant confirmed it was working on several projects with Apple Computer. CEO Eric Schmidt addressed an audience at an investor conference in San Francisco but did not offer details regarding the collaboration.
Fellow technology heavyweights Cisco Systems and Oracle closed with respective gains of about 2% and 3%.
Shares of Swiss drug giant Novartis jumped after the company said it received U.S. approval for Tekturna, a treatment for high blood pressure. The stock remains off its highs for the year following delays for experimental diabetes drug Galvus.
Subprime lenders rallied Tuesday following comments from U.S. Treasury Secretary Henry Paulson that he doesn't see the weakened housing market further damaging the U.S. financial sector. New Century Financial ,NovaStar Financial and others gained sharply.
Diversified real estate investment trusts, or REITs, attracted strong buying interest on Tuesday with solid gains in shares of Vornado Realty Trust, Boston Properties and Cousins Properties.
Topps shares rose on news the 69-year-old baseball card maker will be jointly acquired by Michael Eisner's venture capital firm and private equity firm Madison Dearborn Partners for $385 million.
Stocks In Europe, Asia Close Higher
The FTSE-100 rose as shares of Reuters Group jumped 4.4% after the company forecast stronger revenue growth and earnings in 2007.
The Paris CAC-40 and the DAX both ended about 1% higher.
Tokyo's Nikkei 225 Averagefinished up 1.22%, while other Asian markets also saw strong gains amid currency declines, which eased concerns for export companies.
South Korea's Kospi Index closed with a gain of 1.9% after four straight losing sessions. In Hong Kong, the Hang Seng index jumped after losing more than 1,800 points, or about 9%, in the last week.