Stocks bounced back from their worst week ever with one of their best performances in history as investors cheered a global cash infusion designed to unthaw the credit market and avoid a global meltdown.
The Dow Jones Industrial Average snapped an eight-day losing streak, gaining 936.42, or 11 percent, to close at 9,387.61.
It was the biggest point gain in the Dow's history — nearly double the prior record of 499.2 set back in 2000 — and the biggest percentage gain since 1933.
Monday's rally helped the Dow claw back about half of the 1,874, or 18 percent, it lost last week. That was the worst point and percent drop in market history.
The S&P 500advanced 11.6 percent, while theNasdaqgained 11.8 percent.
The CBOE Volatility Index, believed to be the best gauge of fear in the market, fell 14.8 points, or 21 percent, to 54.99, its biggest one-day point and percentage drop.
"Psychologically, there's been a change in sentiment," said Paul Brigandi, vice president of trading for Direxion Funds. "Last week, there was a lot of fear ... that the government was too little, too late and the market was spiraling out of control," Brigandi said. "Now, people are saying, 'Wow, this is an unprecedented effort ... there is a lot of liquidity being pumped into the market.'"
Volume was light, however, given the Columbus Day holiday. About 1.8 billion shares changed hands on the New York Stock Exchange, less than the average daily volume of about 1.9 billion and a far cry from Friday's record volume of 11.16 billion shares. Advancers outpaced decliners, 20 to 1.
Markets in Asia advanced, while markets in Europe rallied 10 percent, their biggest one-day percentage gain on record, after major central banks pledged to lend unlimited amounts of dollars to commercial banks to unfreeze credit markets and after the U.K. announced plans to bail out three major banks — Royal Bank of Scotland, HBOS and Lloyds.
After the stomach-churning drops of recent weeks, a curious byproduct: Traders are actually saying openly that the bottom is in. Typically, no one wants to be within a 500-mile radius of calling the bottom.
"I think a short-term bottom was put in place on Friday," Brigandi said.
"We've gone through three or four layers of what I thought was the bottom," said David Bianco, chief U.S. equity strategist at UBS Investment Research. "Does it get any worse than last week?" he asked. "If that wasn't it last week, I don't know what was," he said.
Bill Smith, president, CEO and senior portfolio manager at SAM Advisors, agrees and says if you have the guts, now is the time to buystocks like Research In Motion and Apple .
Investors were on it: Shares of Apple and Research In Motion jumped 14 percent and 15 percent, respectively.
Apple benefited from buzz that the company might announce a sub-$1,000 laptopon Tuesday as well as an analyst upgrade. Citigroup raised its rating on Apple to "market weight" from "underweight."
Other market pros said this is just a bear-market rally, a spate of buying in a generally downward-moving market.
General Motors was the biggest gainer on the Dow, surging more than 33 percent following news that the struggling auto maker is fishing around for a merger partner. GM approached Ford about a possible merger in July but Ford rejected the idea, the New York Times reported. Now, GM is in preliminary talks with Chrysler's owner, the private-equity firm Cerberus Capital Management.
Nineteen of the Dow components posted double-digit percentage gains. Only one of the 30 finished lower: General Electric shed 2.3 percent. JPMorgan had been lower for much of the day but eked out a gain of 0.8 percent.
Morgan Stanley shot up 87 percent after details of Mitsubishi UFJ's$9 billion investmentin the firm were released. The deal gives MUFJ a 21-percent stake in Morgan Stanley.
In fact, market pros said it was after terms of the deal were released that the credit-default-swap market improved and the market began to rally.
The turmoil in the financial markets could spark a wave of mergers among banks and remaining brokerage firms in the coming weeks, Wall Street executives told CNBC.
Shares of Sovereign Bancorp fell 3.4 percent after an initial uptick following news that Spain's largest bank, Santander, is in talks to buy the U.S. bank, though no deal has yet been reached, Santander said.
Wachovia shares rose 14 percent amd Wells Fargo gained 7.4 percent after the Federal Reserve said Sunday that it has approved Wells Fargo's takeover ofWachovia and its banking subsidiaries. Citigroup, which dropped out of the battle to take over Wachovia last week, saw its shares advance 12 percent.
Oil rose about $3.50 a barrel to close at $81.19 a barrel as the coordinated government action spurred a rally in commodities in addition to stocks.
But Goldman Sachs,the biggest oil trader on Wall Street, said the financial crisis has already done so much damage to commodity demand that oil could drop to $50 a barrel.
MONDAY: Bond market closed for Columbus Day holiday
TUESDAY: Earnings from Johnson & Johnson, Pepsi
WEDNESDAY: Weekly mortgage applications; Empire State manufacturing survey; PPI; retail sales; business inventories; weekly crude inventories; Fed's beige book; Earnings from Abbott Labs, Coca-Cola, JPMorgan, Wells Fargo and eBay
THURSDAY: CPI; weekly jobless claims; industrial production; Philly Fed survey; weekly natural-gas inventories; Earnings from Bank of New York Mellon, BB&T, Citigroup, CIT Group, Continental, Harley-Davidson, Hershey, Merrill Lynch, Nokia, PNC Bank, Southwest Air, United Technologies, AMD, Capital One, Google and IBM
FRIDAY: Housing starts; consumer sentiment; Earnings from Gannett, Honeywell and Sony Ericsson
Send comments to firstname.lastname@example.org.