Stocks ended more than 2 percent higher for the first trading day of the month, wiping out November's losses, after several economic reports gave investors confidence the U.S. economy is improving.
Investors also took heart from news manufacturing activity in China reached a seven-month high, and hopes that the European sovereign debt situation would be contained.
The Dow Jones Industrial Average rose 249.76 points, or 2.3 percent, to close at 11,255.78 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 rose 25.52 points, or 2.2 percent, to close at 1,206.07, surging past 1,200, a key resistance level. The move was the biggest one-day gain for the index since Sept. 1.
The Nasdaq gained 51.20 points, or 2.1 percent, to close at 2,549.43, its biggest one-day gain in nearly two months.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped 9 percent to just above 21.
In November, the Dow had fallen 1 percent last month, while the S&P slipped 0.2 percent and the Nasdaq fell 0.4 percent, losses easily wiped out by gains of more than 2 percent in each of the major indexes on Wednesday.
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 sank 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.
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.