Stocks closed sharply higher after a rebound by the battered financial sector spread across the entire market.
The major driver all day was Citigroup's agreement to sell a $7.5 billion stake to aninvestor group in Abu Dhabi. The news lifted the whole financial sector, even though Citi achieved only a modest increase.
"When you have the market decline as much as it did in the last week or so, it doesn't take much to bring out all the bottom-fishing bargain hunters," said Hugh Johnson, chief investment officer of Johnson Illington Advisors. "The Citigroup news is what did it today and at least for one day, investors are putting their bearishness on hold."
Gains were posted by JP Morgan, Bank of America and Deutsche Bank. Even beleagured subprime lender Countrywide Financial saw its shares gain after it assured investors it was not borrowing too much.
Investors shrugged off a speech earlier in the day from Philadelphia Federal Reserve President Charles Plosser, who said he would not push for another interest rate cut unless there are significant signs of weaker economic growth.
"I think the U.S. economy will go through a brief period of sluggish growth before returning to a sustained expansion. I expect that inflation during the coming year will remain above the level I view as consistent with price stability, before diminishing thereafter," Plosser said. "However, ... the reduction in the fed funds rate runs the risk of higher inflation and expected inflation in the future."
Still Volatile, Even on a Good Day
Volatility, a watchword for the market over the past several weeks, continued and was nowhere more apparent than with home builders.
Pulte Homes initially saw shares gain more than 7 percent after the company reaffirmed its fourth-quarter outlook, then rose and fell several times throughout the day. Other home builders followed the same pattern, wavering between positive and negative before dipping into negative territory as a report showed prices on single-family homes reaching new lows.
At the same time, the Fed's Plosser said he expects the real estate market to being to recover by the end of the second quarter in 2008.
In other markets, oildropped below $95 a day after indications emerged that OPEC was moving toward a supply increase, while the dollar climbed broadly on the Citi news. Treasuriesfell a full point as stocks pushed higher, giving back some gains after the biggest rally in three years.
Shares for major oil producers moved lower despite analyst upgrades to BP , Chevron and Marathon Oil .
An analyst upgrade did propel several smaller banks upwards, the biggest gainer of which was Regional Financial .
In earnings, Staples moved up sharplyas the biggest US specialty retailer of office supplies reported better-than-expected quarterly profit.
Also, investor Kirk Kerkorian's Tracinda said that it was withdrawing its offer to buy 16 percent of Tesoro because of the refiner's recent adoption of a "poison pill" shareholder rights plan, sending Tesoro shares down sharply.
Video game maker ActiVision was among tech stocks that moved sharply to the upside.
Among other big movers, AspenBio shares surged after the developmental-stage biopharmaceutical asked the Food and Drug Administration to approve its appendicitis blood test.
Online auction service Bidz.com saw its shares tumble even after a strong holiday weekend, when its guidance came in lower than expected, and Arbitron slid after a delay of a controversial new ratings system the company was set to roll out.