Stocks snapped a five-day losing streak, with the Dow surging nearly 300 points on optimism that a government plan to rescue ailing bond insurers is taking shape and could prevent billions more in credit losses.
The market also drew support from growing confidence that aggressive interest-rate cuts by the Federal Reserve could help stabilize the ecomony and support the beleagured banking
The Dow and the S&P 500 closed with big gains after being down more than 2 percent, as investors bought back shares they had bet against and the banking sector soared.
Even the Nasdaq rebounded, closing up 1% after being down 4% as Apple and Motorola fanned fears about a recession and the tech outlook.
Shares of insurers Ambac Financial Group and MBIA, which backstop many of the riskier bets banks and their customers have made in credit markets, surged 63 percent and nearly 36 percent, respectively.
News of a meeting between New York regulators, bond insurers and their customers lifted the market out of negative territory in late afternoon trading, pushing the Dow and S&P up
more than 2 percent by the close. That marked a sharp turnaround from earlier in the day, when the Dow and the S&P were each down more than 2 percent.
"The speculation that mortgage insurers could potentially get a bailout helped the market stabilize. That was enough to get the market going. There was no real silver bullet news that
came through,'' said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Analysts also said investors were forced to buy shares of companies they had made bets against.
"It looks like it's short-covering and also all financials are really, really running right now," said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.
The big question, of course, is whether this late rally will build any momentum.
"What you watch here is rallies in bear markets are short, sharp and die in low volume," Art Cashin of UBS said on CNBC. "You got very healthy volume today. When the volume starts to dry up, get worried."
"I'm going to look towards tomorrow and Friday also," Peter Costa of Eckhart also said on CNBC. "Because what we want to see is follow-through with volume...If tomorrow's volume is similiar to today with this kind of move, now we've reached a base and we can start to move upwards."
Bank of America said Wednesday afternoon it has started a $6 billion public offering of securities, a day after it told Wall Street it planned to raise capital soon, following its report of a 95 percent drop in quarterly profit. Shares of Bank of America shot up 6.3 percent to $39.73.
Bear Stearns upgraded large-cap financial institutions, most notably Bank of New York and JP Morgan. Southeast regional bank SunTrust said credit losses sent earnings down 98 percent yet shares gained, and other battered stocks in the sector including Citigroup and Bank of America were going strong as well. Bear Stearns itself posted strong gains.
Apple earnings Tuesday surpassed analysts' forecasts, but the company gave a second-quarter outlook that fell far below expectations, while Motorola reported a smaller quarterly profitand said its recovery would take longer than expected.
Motorola was the most actively traded issue on the New York Stock Exchange. Other big decliners in tech included Microsoft, Googleand Research in Motion .
"People are looking at tech as a risky area and it's an area where last year people made some money," Tuttle said. "They thinking if I have to sell maybe I have some profits in those areas and I'll sell there, instead of taking losses."
Foster Wheeler also drove the market down after the company announced a 2-for-1 stock split, sending shares plunging.
Retail again was a hot sector, as Home Depot was among the leading Dow gainers, while Verizon led Dow laggards as shares across the telecomm industry plummeted.
A steep drop in European stocksforetold a bad day for the US market, and futures traders were anticipating the indexes to fall more than 2 percent.
Mixed Bag of Earnings
With no major economic data due, investors focused on earnings, which were largely positive outside of the tech issues.
Home builders, led by Beazer, posted solid gains after the Mortgage Bankers Association said its applications index rose to its highest level in nearly four years.
Energy giant Conoco-Phillips reported earnings that easily beat expectations, but its shares and that of its competitors stumbled as recession fears weighed on the industry and sent oil prices downnearly $2 and well off the $100 a barrel high hit just a few weeks ago.
On the downside for financials, student loan company SLM, more commonly known as Sallie Mae, saw its shares again take a huge hit after it reported a $1.6 billion loss. The company also said the Securities and Exchange Commission is investigating the company's disclosures and actions in December 2007 before and after company officials traded company stock.
In deal news, International Business Machines said it is buying privately held AptSoft to expand its business event processing software portfolio.
Market breadth was negative, with losers outpacing winners on the Nasdaq 2 to 1.