Stocks Log Best Day of 2012, Dow Back in the Black

Stocks surged more than 2 percent across the board Wednesday, with the Dow and S&P 500 logging their best one-day gains in 2012, amid growing hopes that central banks around the world will implement further measures to support the global economy.

Stocks saw an extra boost in the final minutes of trading after San Francisco Fed President John Williams said the central bank must stand readyto take even more policy action to boost the ailing job market.

S&P 500

The Dow Jones Industrial Average surged 286.84 points, or 2.37 percent, to close at 12,414.79, led by BofA , logging its first two-day win streak since late April.

The S&P 500 jumped 29.63 points, or 2.30 percent, to end at 1,315.13. The Nasdaq spiked 66.61 points, or 2.40 percent, to finish at 2,844.72. Both indexes are now out of correction territory. The CBOE Volatility Index, widely considered the best gauge of fear in the market, plunged almost 10 percent to end near 22.

All 10 S&P sectors closed firmly in positive territory, led by financials and energy.

“The market’s rallying on anticipation there’s going to be some kind of QE3 or operation twist,” said Alan Valdes, director of floor operations at DME Securities, noting that volume is still on the lighter side. “Traders continue to be very leery right now and will continue to be until we see jobs growth and a housing turnaround…People think the Fed has unlimited fire power—they don’t!”

Growth in the U.S. economy picked up in April and Mayand hiring showed signs of a "modest increase,'' according to the Federal Reserve, in its latest Beige Book summary of national activity.

Meanwhile, Atlanta Fed President Dennis Lockhart said the central bank may need to consider further monetary easing if the economy falters. Comments from both Lockhart and Williams come ahead of Fed Chairman Ben Bernanke's testimony on Thursday on the heels of some dismal economic reports.

Earlier, the ECB held its key interest rate unchangedat 1 percent, which was largely expected, but stopped short of announcing any big measures to help the financial markets. The central bank's President Mario Draghi pledged the ECB will act in a timely manner on inflation. Draghi added he expects inflation to stay above 2 percent this year and to ease to between 1 percent and 2 percent next year.

"Bottom line, Draghi didn't bring the meat the market dogs were hoping for as he seems to be standing pat for now, likely waiting for more stress to envelope before announcing something new of substance," wrote Peter Boockvar, managing director at Miller Tabak & Co.

But European shares closed higheramid hopes for further stimulus to boost the euro zone.

Facebook ended higher in choppy trading after JMP Securities started coverage of the social-networking giant with a "market outperform" rating and a $37 price target. The company closed below $26 a share in the previous session.

Meanwhile, Nasdaq OMX said it plans to set up a $40 million fundto compensate some financial firms that lost money after Facebook's botched market debuton the exchange last month. The plan applies to sell orders at $42 or less that did not execute and buy orders at $42 executed but not confirmed.

Financials led the market rally with BofA posting its biggest one-day rally this year. Morgan Stanley also jumped after news the firm was considering a partial sale of its commodities trading division. Citigroup and JPMorgan were also higher.

Groupon rallied after the daily-deal website's rating was raised to "hold" from "sell" at Stifel.

Oil prices rallied, while gold touched a one-month highto settle above $1,630 an ounce. Halliburton turned lower after the oilfield-services company said its decline in margins from last quarter will twice what the firm had initially expected, due to fracking costs related to guar gum. Shares were temporarily halted earlier.

Chesapeake jumped following a report that the energy company will be selling nearly all of its pipeline assets to in a deal worth more than $4 billion.

Tempur-Pedic plunged nearly 50 percent after the mattress maker slashed its full-year earnings and revenue outlookdue to increasing competition in North America. This comes after Mattress Firm missed revenue expectations on Tuesday and handed in weak quarterly revenue estimates. Smaller rivals Sealy and Select Comfort also fell sharply.

Iron Mountain surged to lead the S&P 500 gainers after the document storage company announced it will convert to a real estate investment trust. In addition, at least two brokerages boosted their price targets on the firm.

On the economic front, U.S. productivity fell more than expectedat a 0.9 percent annual rate in the first quarter, according to the Labor Department. Mortgage applications gained last week, according to the Mortgage Bankers Association.

—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

THURSDAY: Bank of England announcement, jobless claims, Bernanke speaks, quarterly services survey, Fed's Lockhart speaks, Fed's Kocherlakota speaks, consumer credit; Earnings from Lululemon Athletica, JM Smucker
FRIDAY: International trade, wholesale trade, Fed's Kocherlakota speaks, Chesapeake annual meeting

More From