Stocks added to gains after several companies posted positive earnings results and as investors shrugged off concerns about the effect of the foreclosure crisis on banks and a rise in Chinese interest rates.
The Dow Jones Industrial Average rose more than 120 points, aday after a rocky session when stocks posted the biggest point and percentage drop since Aug. 11.
DuPont ,Boeing , and Intel led gainers on the blue-chip index. Bank of America and United Technologies slumped.
The S&P 500 Index and the Nasdaq also gained. TheCBOE Volatility Index, widely considered the best gauge of fear in the market, fell to below 20.
Most S&P 500 sectors gained, led by materials, telecom and energy.
A drop in the dollar against a basket of currencies aided materials stocks, including Cliffs Natural Resources and Freeport-McMoRan .
The unexpected rise in Chinese interest ratesreflects the nation's concerns with rising inflation, but it came as a surprise as several top leaders recently expressed confidence that inflation is under control.
While the market was up significantly Wednesday, after Tuesday's sharp sell-off, strategists at UBS securities said in a research note that investors generally are hesitant to reward companies with better-than-expected profits unless it's clear they can repeat that performance in the future.
According to UBS, 35 of 42 companies reported positive earnings-per-share results, with 7.1 percent beating estimates. Those surprises, however, were driven by cost cutting, not revenue growth, which disappoints investors, UBS said.
"Similar to last quarter, the market has actually punished bottom-line surprises if not accompanied by revenues beats," the report said.
Specifically, companies beating profits and revenue estimates, such as Alcoa and Google, "have been handsomely rewarded," rewarded, UBS said, while companies beating earnings estimates, but not revenues, such as GE and JP Morgan, have underperformed.
In earnings news, Morgan Stanley's shares fell after after posting earnings that were worse than expected, even as its quarterly revenue results beat forecasts. Profits at the investment bank were hurt by tigher debt-related credit spreads.
Wells Fargo , meanwhile, beat analyst expectationswith reported record net income in the third quarter of $3.34 billion, thanks to its merger with Wachovia and the growth of its core business. US Bancorp , too, reported a better-than-expected boost in third-quarter earnings, and said corporate loan demand rose for the first time in two years.
The stock market rally this fall benefited Blackrock, which posted a surprising rise in profits. The investment managers received more assets from clients. Blackrock earned $2.75 a share, far better than thte $2.46 anticipated by analysts, according to Thomson Reuters I/B/E/S.
A rise in commercial airline volume helped to improve Boeing's results for the quarter, and the airline maker also lifted its guidance.
Industrials were largely higher after earnings reports, although United Technologies fell despite beating analysts expectations with a 13 percent rise in earnings. Standpoint cut its rating for the stock to "hold" from "buy" after the earnings release saying the diversified manufacturer was fairly valued.
Textron , meanwhile, slumped after the small aircraft maker reported a loss for the third quarter, and revenue fell.
Eaton's third quarter earnings jumped 39 percent, beating forecasts for the diversified manufacturer.
International demand for air travel boosted Delta Air Lines to a profit for the third quarter quarter, after a loss in the same period a year ago.
In economic news, U.S. mortgage applications fell last weekas interest rates on 15- and 30-year fixed-rate mortgages rose for the first time in six weeks, the Mortgage Bankers Association reported on Wednesday.
Crude oil inventories rose less than expected for the week, by 700,000 barrels. The price of crude oilrose slightly, above $80 a barrel.
Data on crude inventories, will be released at 10:30 am. Investors will also be looking out for the Fed's Beige Book survey at 2.00 p.m.
Banks are in focus again, after a group of eight investors accused Bank of America of inappropriately bundling some mortgages into more than $47 billion of bonds. The bank said it would fight being held responsible for the investors' losses. Also, the bank's shares were downgraded by several brokerages because of potential loan losses. Stifel Nicolaus said fundamental analysis of the bank, however, doesn't warrant a downgrade.
The White House also warned it would hold lenders accountable for any illegal foreclosure practices, sending the shares of major banks lower on Tuesday.
Investor Jim Rogers, who started the Quantum Fund with George Soros, said on CNBC that he does not think bank stocks are attractive now because there is still uncertainty about their balance sheets.
Yahoo shares were higher despite missing sales forecasts. The Internet firm reported after the bell Tuesday.
Boston Scientific soared to the top of the S&P 500 after the medical-device maker reported earnings that were double analyst expectations, and raised its forecast for the year.
Shares of Amylin Pharmaceuticals and Eli Lilly fell after The Food and Drug Administration declined to approvea diabetes drug being developed by the companies. The FDA said the drug required more studies. The companies plan to reapply.
Also in health care news, Pfizer is expanding to Brazil, with the purchase of a 40 percent stake in Brazil's Laboratorio Teuto Brasileiro, a generic drug specialist.
The government of Saskatchewan is expected to reject BHP Billiton's takeover attempt of Potash , the Wall Street Journal reported, citing people familiar with the matter.
In Europe, British chancellor George Osborne is due to outline government spending cuts, slashing benefits and public sector jobs with a five-year austerity plan aimed at clearing the nation's debts.
On the Calendar Next Week:
WEDNESDAY: Oil inventories, Beige book; Apple Mac Event, Richmond Fed. President Lacker speaks, Philadelphia Fed President Plosser speaks; after-the-bell earnings from eBay, E*Trade, Netflix and Seagate Technologies.
THURSDAY: ECB Meeting, jobless claims, leading indicators, natural gas inventories, money supply, Kansas City Fed President Hoenig speaks, CBO Director Elmendorf speaks; before-the-bell earnings from AT&T, Caterpillar, Credit Suisse, Eli Lilly, Novartis, Travelers, UPS, Continental Airlines, PNC Bank, Southwest Airlines, and Xerox; after-the-bell earnings from American Express and Amazon.
FRIDAY: G20 Finance Ministers & Central Bank Governor's Meeting; before-the-bell earnings from Verizon, Exelon, Ingersoll-Rand and Schlumberger.
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