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Stocks Rebound Sharply on EU Bank Aid Plan

Tuesday, 4 Oct 2011 | 4:42 PM ET

Stocks rebounded during the final hour of trading in a roller coaster ride on Wall Street Tuesday, following a report that EU finance ministers are examining possible ways to recapitalize banks and after Fed Chairman Ben Bernanke said he is prepared to help the economy.

The Dow Jones Industrial Average jumped 153.41 points, or 1.44 percent, to end at 10,808.71, led by DuPont and JPMorgan led the blue-chip gainers.

The S&P 500 also rallied 24.71 points, or 2.25 percent, to close at 1,123.94 after dipping in and out of its bear market territory, definied by a 20 percent decline from the highs in April.

And the tech-heavy Nasdaq soared 68.99 points, or 2.95 percent, to finish at 2,404.82.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped near 40.

Most S&P sectors finished higher, propelled by financials and materials.

EU finance ministers are looking into ways to recapitalize banksafter agreeing that additional measures were needed to rescue the debt-ridden region's financial institutions, according to a report from the FT.

“This report reinforces that this market is still headline driven and fundamentals don’t even seem necessary,” said Todd Schoenberger, managing principal of The BlackBay Group. ”It’s all about headline news and there’s a game-changer headline every hour. The question is—is it even sustainable? There’s no way this [news] is going to propel stocks higher for the rest of the week.”

Meanwhile, Fed Chairman Ben Bernanke said the committee is prepared to provide a "broad based lending program" to help the ailing economy, adding that the Fed stands ready to ease monetary conditions further following its launch of a new stimulus measure in September.

Bernanke has been “very careful” not to disrupt the markets the way his speech did after the last FOMC meeting, according to Bruce McCain, chief investment strategist at Key Private Bank.

“What [Bernanke’s] focused on is to keep from panicking already panicked markets even more by being very reserved in his statements,” said McCain. “As we gradually work out way over time, hopefully [the Fed] will do something more effective.”

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“We’ve already priced in a lot of bad news, but we may still go lower because we still seem to be in the deteriorating phase, but you can still make money in the longer-term even from these levels,” said McCain.

Stocks had been under pressure for most of the session amid worries of a possible default in Greece as euro zone finance ministers met in Luxembourg, saying the debt-ridden nation could wait until mid-November to get the next installment of emergency aid, Reuters reported.

Among European banks, German financial giant Deutsche Bank said it expects third-quarter earnings to be substantially lower than expectedand Franco-Belgian Dexia plunged sharply amid worries the firm would need to be broken up.

Dexia's board held an emergency meeting in which it tasked CEO Pierre Mariani with preparing measures to resolve structural problems that were harming its operations.

Meanwhile both the Belgian and French governments pledged to take all measures necessary to protect Dexia’s account holders. According to Belgian newspaper reports, the bank could be carved up and its “good” assets sold.

The weakness in European banks initially put downward pressure on U.S. financials including Morgan Stanley , JPMorgan and Citigroup , but all the major banks reversed their losses near the end of the session along with the broader market.

Appleunveiled its new iPhone 4Swith upgraded features, in time for the crucial holiday shopping season. But shares fell as some fans had hoped for more than an updated version of last year's model.

Meanwhile, other tech stocks finished higher with most semiconductors gaining sharply—Nvidia , Taiwan Semiand Intel all jumped.

AMR rebounded sharply after plunging more than 30 percent in the previous session following talks of a potential bankruptcy filing. In addition, at least two brokerages raised their ratings on the firm.

Meanwhile, EU regulators are expected to formally objectthe Deutsche Boerseand NYSE Euronext merger deal this week, according to Reuters.

Fast-food chain giant Yum Brands is slated to report earnings after-the-bell tonight.

On the economic front, factory orders slipped for the second time in three months, according to the Commerce Department.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC

Coming Up This Week:

WEDNESDAY: Weekly mortgage apps, Challenger job-cut report, ADP employment report, IS non-mfg index, oil inventories; Earnings from Costco, Monsanto, Marriott
THURSDAY: BoE announcement, ECB announcement, jobless claims, chain-store sales; Earnings from Constellation Brands
FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint's 4G plans unveiled

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