Stocks Rally for 4th Day on Europe Bank Hopes

Stocks closed sharply higher for a fourth-consecutive session Thursday following news that major central banks across the world agreed to lend U.S. dollars to European banks, taking pressure off funding issues across European banks.

The Dow Jones Industrial Average surged 186.45 points, or 1.66 percent, to finish at 11,433.18, with all 30 blue-chip stocks posting a gain.

BofA and JPMorgan were the biggest gainers.

The S&P 500 rallied 20.43 points, or 1.72 percent, to close at 1,209.11. The Nasdaq jumped 34.52 points, or 1.34 percent, to end at 2,607.07, logging its highest close in six weeks.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 32.

All 10 S&P sectors were higher, led by financials and energy.

“Everyone loves to see this kind of buoyancy in the market after what we’ve been through recently and there is technical reasons for it,” Peter Kenny, managing director at Knight Equities told CNBC. “I suspect we do have further room here—we could see another 4 or 5 percent on the Dow, but we’re going to run into some headwinds because those broader stories are going to continue to dominate the bigger picture.”

Markets rallied after European Central Bank said it would reintroduce three-month dollar liquidity operations in the fourth quarter, alongside other major central banks. The ECB said it would hold three separate operations between October and December, adding it would help see banks through the year-end period.

The central bank loans will alleviate pressure from financials, which have been under pressure recently amid worries that they were having difficulties getting short-term loans from each other.

“In all likelihood this might be a temporary fix and we need to address the problems at large in Europe,” said Zahid Siddique, portfolio manager of Gabelli Equity Trust. “So the volatility will continue in the markets in the near-term…The hope is that over time, the system will fix itself.”

Other markets jumped across the board following the news with the euro rallyingand the 10-year Treasury yieldjumping. Brent crude also extended their gains. European shares closed higher, extending the previous session's rally.

Morgan Stanley and JPMorgan gained following the news, while European banks trading in the U.S. including Barclays and Deutsche Bank also rallied.

Meanwhile, Morgan Stalney's chairman John Mack will be retiring from his post at the start of 2012 and will be replaced by CEO James Gorman.

Netflix sank almost 20 percent after the video rental company slashed its subscriber numbers in the U.S. for the third quarter, due to a deecline in DVD-only customers. Meanwhile, JPMorgan cut its price target on the firm to $245 from $340.

Diversified U.S. manufacturer Tyco International agreed to acquire Israeli electronic security systems maker Visonic for $2.26 a share, or a total of $100 million in cash.

Meanwhile a U.S. federal jury awarded DuPont $919.9 million in damages on Wednesday, ruling that South Korean company Kolon Industries stole trade secrets for a fiber used to make Kevlar bulletproof vests.

And the SEC is widening its probe into mortgage-bond deals that ushered in the financial crisis, and is pushing for a settlement of more than $200 million with Citigroup the Wall Street Journal reported, citing people familiar with the matter.

UBS slumped following news the banking giant said said it would likely post a third-quarter lossafter a rogue trader had lost it $2 billion in unauthorized dealing.

Pepsi climbed amid a market rumor that the beverage giant might split. This comes after the firm announced a management shake-up in the previous session.

Deutsche Bank initiated coverage of a handful of retailers with a "buy" rating including Costco , Macy's , Nordstrom and Whole Foods .

Meanwhile, Deutsche Bank initiated coverage of JCPenney , Saks and Wal-Mart with a "sell" rating.

Blackberry maker Research In Motion is scheduled to post earnings after-the-bell tonight. The stock has dropped almost 50 percent year to date.

Trading volume was significantly lighter than usual with the consolidated tape of the NYSE at 3.86 billion shares, while 964 million shares changed hands on the floor.

On the economic front, weekly jobless claims gained unexpectedlyto 428,000 in the past week, while inflation pushed higher.

A gauge of manufacturing in New York State contracted in September to its lowest level since November, according to the New York Fed.

Meanwhile, the Philadelphia Federal Reserve said its index of business conditions in the mid-atlantic region improved to -17.5 in September from -30.7 in August.

Industrial production crept up slightly in August, according to the Federal Reserve, a sign that the economy isn't headed for another recession.

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