Stocks saw its biggest one-day gain since May 2010 Tuesday after a wild market session as investors snapped up beaten-down stocks and following a Fed statement to keep interest rates near zero for at least two more years.
The Dow Jones Industrial Average soared 429.92 points, or 3.98 percent, to close at 11,239.77, after fluctuating heavily in the wake of the Fed decision. The Dow swung in a 640-point range during the session.
All 30 Dow components finished higher, led by BofA and Alcoa .
The S&P 500 rallied 49.84 points, or 4.45 percent, to finish at 1,169.30. The Nasdaq surged 124.83 points, or 5.29 percent, to end at 2,482.52.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, plunged 25 percent.
The rebound comes after stocks sold off sharply in the previous session to log the worst day since the credit crisis in 2008 following S&P's downgrade of U.S.'s credit rating last week.
Volume was heavy again with the consolidated tape of the NYSE at 8.55 billion shares, while 2.41 billion shares changed hands on the floor.
Stocks initially swung in and out of negative territory after the Fed said it will keep rates low for "at least through mid-2013" and gave no further plans to spur economic growth.
“There’s a tug-of-war between vastly oversold conditions and the Fed statement,” said Sal Arnuk, co-manager of trading at Themis Trading. “It seems like the Fed doesn’t know what to do and they’re running out of clever ideas—that’s what pulled markets down. On the other hand, we have fairly cheap equities.”
“The general reaction is there’s not much substance [in the statement],” said Bruce McCain, chief investment strategist at Key Private Bank. “I think what people really wanted was something that would make the situation better…there is some disappointment that [the Fed] didn’t take more of an aggressive tact than they did.”
Bank of America jumped more than 15 percent, recouping from its previous session's loss of over 20 percent amid fears the firm may need to raise capital to cover mortgage related losses in its Countrywide business. Rival Citigroup also rebounded sharply.
Among other banks, Wells Fargo jumped after FBR raised the firm to "outperform" from "market perform" and added it to their "top picks" list. Meanwhile, FBR removed PNC from the same list.
Despite the day's gain, financials are still the worst-performing sector, slumping more than 20 percent this year.
On the tech front, Apple became the largest public company as the iPod maker's market cap gained to about $341.4 billion, surpassing ExxonMobil .
Large-cap stocks rebounded strongly across the board including Oracle and Google .
Other Internet stocks also jumped including Baidu , Yahoo and Ebay surging almost 10 percent each.
Meanwhile, Transatlantic Holdings turned down a $3.2 billion takeover bidby Warren Buffett's Berkshire Hathaway unit
On the earnings front, AOL plunged nearly 25 percent after the media company posted a surprise quarterly loss, due to weaker-than-expected advertising growth.
Disney is scheduled to release earnings after-the-bell.
Gold prices hit a record $1,778 an ounce in its biggest three-day rally since the depths of the financial crisis in late 2008
Treasury prices gainedafter the government auctioned $32 billion in three-year notes which had a high yield of 0.50 and a bid-to-cover of 3.29. Auctions of $24 billion in 10-year notes and $16 billion in 30-year bonds are expected on Wednesday and Thursday, respectively.
On the economic front, productivity dropped 0.3 percent in the second quarter, according to the Labor Department, the first consecutive decline since the second half of 2008.
European shares ended broadly higher, halting a 20 percent dive over 2-1/2 weeks as traders snapped up deeply-discounted stocks.
Coming Up This Week:
WEDNESDAY: Weekly mortgage apps, wholesale trade, oil inventories, 10-yr note auction, treasury budget; Earnings from Macy's, Cisco
THURSDAY: International trade, jobless claims, 30-yr bond auction, money supply; Earnings from Kohl's, Nordstrom, Nvidia
FRIDAY: Retail sales, consumer sentiment, business inventories; Earnings from JCPenney
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