Stocks began September by soaring more than 2.5 percent after strong U.S. and Chinese manufacturing reports relieved some of the mounting worries over the global economy.
The Dow Jones Industrial Average rose 254.75 points, or 2.5 percent to end at 10,269.47.
All 30 Dow components ended higher, led by Bank of America, Caterpillar DJIA, , and JP Morgan .
The S&P 500 ended up 30.96 points, or 2.95 percent, to 1,080.29, and the Nasdaq ended up 62.81 points, or 3 percent, to 2,176.84.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell more than 8 percent, below 24.
All 10 of the key S&P 500 sectors rose, led by industrials, financials and energy stocks.
Wednesday's market action provided welcome relief after the worst August for stocks since 2001. Most strategists were encouraged by the rally and some added that a double-dip is unlikely to happen going forward.
“We think that corporate balance sheets are in good shape,” said Kent Croft, chief investment officer and portfolio manager at Croft Value Fund. “There’s a lot of very high quality selling at a great discount."
More clarity on the direction of the market will come later this week, when the government releases weekly jobless claims on Thursday and August nonfarm payrolls on Friday, said Quincy Krosby, market strategist at Prudential Financial.
Apple shares rose almost 3 percent following news the firm will be introducing new iPods for every model this year, including the new Shuffle for $49.
At a media event in San Francisco, Apple also announced a smaller, cheaper version of Apple TV to stream movies and television shows over the Internet.
NetFlix , Disney (ABC's parent) and News Corp. are all higher after Steve Jobs, Apple's founder, said at the conference that Apple TV will show their content.
Sony meanwhile, said it will launch a new music and video download servicedesigned to challenge Apple, as it holds its own media event in Berlin.
Elsewhere among technology stocks, Amazon.com jumped almost 5 percent after the online retailer is reportedly entering the business of delivering TV over the Internet, according to a report in The Wall Street Journal.
Meanwhile, Credit Suisse downgraded the semiconductor sector to "market weight" from "overweight," citing a "clear weakening of orders" for computers and electronic products for June and July, in a note to clients. But most chipmakers were still trading higher.
Among financial stocks, up more than 3 percent as a group, Bank of America rose more than 4 percent after a federal judge approved a settlement with the SEC. The SEC was concerned with bonuses paid to Merrill Lynch employees before BofA's purchase of the investment bank in January 2009.
Rivals Citigroup and JPMorgan were also up significantly.
Goldman Sachs shares were higher after the financial giant raised its exposure to equities to $18 billion from $6 billion and sold down its bond holdings, according to sources.
Most retailers surged following a report that state sales-tax holidays and back-to-school buying boosted sales. Retail stocks largely reacted postively although the report by SpendingPulse, an information service by MasterCard Advisors, was less optimistic about the future, noting consumers remain cautious.
Abercrombie, Polo Ralph Lauren, and Macy’s were all up significantly.
An exception was Saks , which tumbled a day after the luxury retailer rose more than 14 percent on unconfirmed takeover talk. Meanwhile, JPMorgan downgraded Saks to "neutral."
More data on retail sales comes on Thursday when the Thomson Reuters Same-Store Sales Index is released; the index is expected to rise 2.5 percent in August, according to the research firm.
Meanwhile, auto sales suffered in August, as expected given that sales got a boost last August from the "cash for clunkers" program. Sales at Fordfell 7.1 percent year-over-year, more than the 4.1 percent decline expected, and sales at General Motors fell 7.3 percent among their core brands.
Shares of Burger King spiked after news the fast-food chain is considering a possible sale and has been holding talks with potential buyers, according to reports.
Rivals Jack-in-the-Box , Chipotle and Brinker International all rose.
Caterpillar surged after news that the construction machinery giant it is expanding manufacturing capacity in Brazil.
General Electric rose more than 3 percent after an official at the conglomerate said the firm could spend as much as $30 billion on acquisitions within two to three years.
And Rowan shares soared almost 10 percent after the offshore rig contractor signed contracts with Saudi Aramco for two of its Gulf of Mexico-based rigs for higher dayrates, on track with its plans to move those rigs overseas.
In the day's economic news, the Institute for Supply Management's monthly manufacturing index for August came in at 56.3,much better than the expected drop to 52.5 for August. The July reading was 55.5.
Stocks were already higher before the manufacturing report following news of a rebound in Chinese manufacturing. The Chinese data, coupled with positive economic reports out of Australia, India and Germany, confirmed "global demand remains intact," said Krosby at Prudential Financial.
The gains in Chinese manufacturing is giving a boost to materials stocks. Vale , BHP Billiton, Rio Tinto and Arcelor Mittal, all rose substantially.
Copper prices rose to their highest levels in more than four months.
The Mortgage Bankers Association reported applications for home purchasing and refinancing rose last weekamid the lowest interest rates since 1990.
And a report from ADP and Macroeconomic Advisors showed the private sector lost 10,000 jobs from July to August largely due to a drop of 40,000 jobs in the goods-producing sector. But the news was offset somewhat by a separate report from Challenger, Gray & Christmas showing that planned layoffs hit a 10-year low in the month.
Construction spending, meanwhile, slumped 1.0 percent in July to $805.2 billion, the lowest level in 10 years, the Commerce Department reported. Figures for June were revised to an 0.8 percent fall, instead of the 0.1 percent gain previously reported.
Treasury debt prices tumbledas investors ventured back into riskier assets and out of safe-haven government debt. The long bond lost more than two points, erasing a modest rally this week after the 30-year lost more than three points during Friday's post-Fed meeting rally. The 10-year Treasury note ended the day down 29/32 points, raising the yield to 2.582 percent.
Oil prices jumped near $74 a barrel, while gold eased near $1,247 an ounceas investors returned to risk. Gold previously hit two-month highs amid concerns over economic recovery.
Gold miners showed pockets of weakness with shares of Barrick Gold and KinrossGold down.
Volume on the New York Stock Exchange was at normal levels, with 1.2 billion shares changing hands. Advancers led to decliners about 6 to 1.
On Tap This Week:
THURSDAY: August chain store sales; weekly jobless claims; productivity and costs; factory orders; pending home sales; earnings before the bell from Del Monte, after the bell from H&R Block.
FRIDAY: August jobs report; Fed's Lockhart speaks; ISM services index; earnings before the bell from Campbell Soup.
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