Stocks snapped a three-day losing streak as lawmakers grew close to an agreement for a Wall Street bailout.
All three major indexes gained at least 1 percent: The Dow Jones Industrial Average rose 196.89, or 1.8 percent, to close at 11022.06, after earlier being up more than 300 points. The S&P 500 advanced 2 percent and the Nasdaq climbed 1.4 percent.
Financials led the way, withJPMorgan and Bank of America among the top three gainers on the Dow. (Track the Dow winners and losers.)
House and Senate negotiators have reached a "fundamental agreement," said Sen. Chris Dodd, chairman of the Senate Banking Committee, echoing earlier comments that it was "almost a done deal" by U.S. Representative Paul Kanjorski. But House Republicans clarified that there are still some unresolved issues. In any case, a deal is expected in the next few days.
The market numbers may have conveyed elation but the mood on the trading floor was anything but. Traders had a serious case of buy the rumor, sell the news.
"I don't want them to ever let out the details!" Steve Grasso of Stuart Frankel told CNBC. "We can keep this rally probably into next week, but then you're going to see the details flood out and we're going to sell off of that."
"I think [traders] are celebrating Congress’s action but I haven’t seen much evidence that what really they’re hoping to [get addressed], which is the credit markets," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "I don’t see much to cheer about — yet."
Once a deal is reached, the market is likely to reverse, Ablin said, as traders focus on how bad things are in the global economy.
(Hedge funds may have found a way around the short-ban list. Click on the video at left.)
Amid all the uncertainty, the old saying "cash is king" has become fashionable again as experts warned in times like these investors should take refuge in safety.
After being the top drag on the Dow in the morning, General Electric finished in the No. 2 spot, behind JPMorgan, an interview on CNBC (which is owned by GE) with CEO Jeff Immelt in which he said the overall company remains strong.
Immelt said the company's financial unit doesn't have activity in some of the high-risk areas that AIG and some investment banks did, that it's reducing its leverage and has been increasing its loss reserves for quite some time.
Earlier, GE was the biggest drag on the Dow after the economic bellwether cut its earnings outlook for the third-quarter and full year and halted its buyback plans because of turmoil in the financial-services markets.
Jobless claims jumped by 32,000last week, more than the 20K jump expected. Orders for durable goods, items such as cars and refrigerators that are meant to last three years or more, fell by 4.5 percent, nearly three times the 1.6-percent drop expected. And, new-home sales plunged 11.5 percent to a 17-year low as prices hit a four-year low.
But the market shrugged off the triple miss on the economic front, instead pinning its hopes on Congress.
UBS shares surged 8.9 percent on chatter that HSBC is prepared to make a bid on the Swiss bank, even though sources have told Reuters otherwise.
Shares of Research In Motion advanced nearly 1 percent ahead of the BlackBerry maker's second-quarter earnings, due out after the closing bell. Analysts expect a 74-percent jump in earnings and an 89-percent increase in revenue.
"This could add a level of risk with which, in today's uncertain world, we are not entirely comfortable," Goldman analysts wrote about Pilgrim's Pride in a note to clients. "So, we are guarded in our outlook."
Shares of rivals Tyson Foods and Sanderson Farms rose as Goldman analysts said neither are at risk for default.
On the earnings front, Nike shares shot up nearly 10 percent after the athletic-gear maker beat earnings forecasts.
Credit-card giant Discover Financial reported that its profit fell 11 percent as its provisions for bad loans rose sharply. Its shares fell 2.6 percent.
Drugstore-chain Rite Aid reported its loss nearly tripled as the Eckerd chain it bought in 2007 continued to struggle. Rite Aid also announced that it has hired two former Pathmark executives and three top Rite Aid execs are leaving the company. Its shares fell 4.2 percent.
STILL TO COME:
FRIDAY: St. Louis Fed pres. speaks; Last look at Q2 GDP, corporate profits; consumer sentiment; Earnings from KBHome
Send comments to firstname.lastname@example.org.