Stocks continued to soar more than 2 percent on the first day of December after news the Federal Reserve's regional survey showed growth is rising throughout most of the U.S.
The market was strong from the start after an upbeat report on private sector jobs and news that manufacturing activity in China reached a seven-month high.
The Dow Jones Industrial Average gained more than 250 points, a day after stocks ended the month lower .
All 30 Dow components were higher led by Home Depot, Microsoft and Caterpillar .
The S&P 500 and the Nasdaq also jumped. The S&P traded as high as 1,206, surging past 1,200, a key resistance level. The CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped more than 10 percent to below 21.
The key S&P 500 sectors all gained, led by energy, materialsand industrials.
The Federal Reserve's Beige Bookfound 10 of the Fed's 12 regions reported economic growth rose at either a "slight to modest" pace or at a "somewhat stronger" pace. Philadelphia and St. Louis, by contrast, reported business conditions as mixed.
The market surged higher midday after a report by Reuters that the U.S. would be willing to back a larger European financial stability fund by increasing commitments to the International Monetary Fund, according to Reuters. But a report by another news organization contradicted that account.
The dollar plunged against a basket of currencies, as the euro gained. Gold rose above $1,390 an ounce.
The European debt crisis was still in focus after Standard & Poor's said it may downgrade Portugal's debt rating in 3 months. And a senior G20 source revealed to Reuters that G20 deputy finance ministers held a teleconference to discuss "the financial situation in Europe" Monday.
In addition, stocks rallied following a successful bond sale in Portugal, albeit at higher interest rates.
Also on Wednesday, the Federal Reserve released details on $3.3 trillion in emergency loansmade during the 2007-2009 financial meltdown, including who borrowed how much and what collateral they put up.
Citigroup , Merrill Lynchand Morgan Stanley were the biggest borrowers of Fed funds.
However, experts said the disclosures will be interesting, but not meaningful for investors.
Bank of America rallied, recovering some of their losses a day after fears of the potential impact of allegedly leaked documents about the bank sent shares down more than 3 percent.
Earlier, much of the market's support came from a steady stream of good economic reports, including a rise in private payrolls.
"The U.S. economy continues to produce some pretty impressive numbers," said Ryan Detrick, senior technical analyst at Schaeffer's Investment Research.
Detrick considers the 5 percent pullback in stocks "a regular, normal correction," and said the market "should produce moves back to recent highs before the end of the year."
One piece of evidence the market will move higher is the performance of consumer discretionary stocks, which have been soaring, he said.
The Consumer Discretionary Select SPDR Fund, an exchange-traded fund, hit a 52-week high. The ETF had been higher last summer, before the market took off, Detrick noted.
"That’s where the relative strength is," he said. "We think that's a good leading indicator."
Shares of Ford , General Motors and Nissan climbed after the automakers all reported higher auto and truck sales in November . Toyota was higher although the automaker reported a 3.3 percent slump in sales.
Oil prices rose above $86 a barrelafter the government showed a 1.1 million rise in crude inventories for the week before. Analysts had expected inventories to fall 900,000.
The energy sector remained strong, climbing more than 2 percent. Schlumberger and Halliburton gained in addition to oil giants Chevron , ExxonMobil and ConocoPhillips .
Retail stocks were higher as investors took heart in reports of strong holiday sales. November reports from retailers were expected to show gains of 3.6 percent, according to analysts polled by Thomson Reuters. On so-called Cyber Monday, Americans spent $1 billion , the most ever spent online in one day, according to research firm comScore.
Internet retailers Amazon.com rose, as did Bluefly ,Overstock.com and eBay .
Several retailers hit 52-week highs, including luxury retailers Tiffanyand Coach , as well as Limited Brands and Costco .
And Kroger rose after Jefferies upgraded the grocer to "buy" from "neutral," and boosted its price target to $27 a share from $23.
American Express rose after news JPMorgan started covering the financial firm with an "overweight" rating and a price target of $50. The brokerage also began covering Discover Financial and Capital One with "neutral" ratings.
In tech news, Google gained after Oppenheimer said the stock is a "buy" given market speculation the Internet search giant will be acquiring online discounter Groupon,countering a view that the acquisition as too pricey, among other concerns.
Meanwhile, Netflix was down slightly after news the company struck a deal with FilmDistrictto stream first-run movies over the Internet.
Motorola rose after news its board approved a 1-for-7 reverse stock split.
On the economic front, the market got a lift early in the session after news the economy created 93,000 private-sector jobs in November, according to ADP and Macroeconomic Advisors. The rise was the biggest since November 2007.
However, layoffs in November were 28 percent higher than in October, the biggest increase in eight months, global outplacement consultancy Challenger, Gray & Christmas reported. The biggest number of layoffs were in the nonprofit sector.
U.S. nonfarm productivity rose at an annual rate of 2.3 percent in the third quarter, better than the 1.9 percent pace reported in November, reported the Labor Department.
Meanwhile, manufacturing growth slowed slightly in November, though the sector still posted its 16th consecutive month of expansion, according to the Institute of Supply Management. The index of national factory activity slipped to 56.6 last month from 56.9 in October.
In China, a purchasing manager's index rose to a seven-month high of 55.2 in November from 54.7 in October, according to the China Federation of Logistics and Purchasing.
Higher mortgage rates led to a slowdown in mortgage applicationslast week. A seasonally adjusted index of mortgage application activity dropped 16.5 percent to 608.8 in the week ended Nov. 26, led by a 21.6 percent drop in refinancings, according to the Mortgage Bankers Association.
Meanwhile, Federal Reserve Chairman Ben Bernanke warned Tuesday that a long period of high unemployment could have severe social consequences.
A panel wrestling with how to cut the deficit and balance the U.S. budget proposed larger cuts in spending and more alternatives for revising the tax code than an initial plan. The revision is designed to attract more support from lawmakers on the panel, which will vote on the proposal on Friday.
On Tap This Week:
THURSDAY: ECB announcement, jobless claims, pending home sales, Philadelphia Fed Pres Plosser speaks, Fed Gov. Duke speaks, chain-store sales; Earnings from Toll Brothers, Del Monte and Kroger
FRIDAY: Employment situation, factory orders, ISM non-manufacturing index
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