Stocks surged to two-year highs on Thursday as all the major indexes rose beyond their closing highs for the year in the wake of the Federal Reserve's decision to buy $600 billion in Treasury bonds to boost the economy and news that President Obama said he was open to extending the Bush-era tax cuts to all income levels.
The market also got a late afternoon boost after news the Fed will reportedly allow "healthy" banks to raise their dividends.
The Dow Jones Industrial Average rose 219.71 points, or almost 2 percent, to close at 11,434.84, the highest close for the blue-chip index since Sept. 8, 2008. The surge was led by banks and big multinationals, a day after the Dow rose slightlyfollowing the Fed's move.
JPMorgan, Bank of America, and Caterpillar led the blue-chips higher, while Pfizer was the only laggard.
The S&P 500 Index rose 23.09 points, or 1.9 percent, to close at 1,221.05, the highest close for the broad market index since Sept. 19, 2008.
The Nasdaq, rose 37.07 points, or 1.5 percent, to close at 2,577.34, the highest close for the tech-heavy index since Jan. 3, 2008.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, tumbled more than 5 percent to trade under 19.
All key S&P sectors were higher, led by financials, materials and energy.
The Wall Street Journal reported that the Federal Reserve will allowbanks with "strong capital levels," to boost their dividend payments, citing "people familiar with the matter."
Regulators will issue guidance on the standards banks have to meet soon, according to the sources, the Journal said.
Banks getting a boost from the Fed move also included Wells Fargo and regionals Zions Bancorp and PNC Financial Services . The Keefe Bruyette Woods Bank Index also rose.
The news that President Obama might consider a compromisewith Republicans over the tax breaks came from White House spokesman Robert Gibbs two days after voters handed the House of Representatives to the Republicans.
If the tax cuts are extended for all income brackets, it'll take year-end tax selling off the table, Warren Meyers, DME Securities trader, said on CNBC.
"Everybody has been waiting for this, hoping for this to happen," Meyers said. "The fact it now looks like a reality, it's obviously very good for the economy, very good for the equity markets certainly."
In a research note, strategists at UBS said the market was likely already anticipating an extension of the tax cuts, but that their extension could have a "modest positive impact."
"Given the size of the US government’s long term budget deficits, a combination of both spending cuts and higher taxes will have to be part of any solution down the road," UBS said in a research note.