Speculation that governments in the U.S. and Europe will act to help their economies sent stocks surging to their best day this year.
Atlanta Federal Reserve President Dennis Lockhart said in a speech that weak job growth over the past two months highlighted the "halting and tenuous" recovery. If the trend continues, "further monetary actions to support the recovery will certainly need to be considered," he said.
At the same time, news reports indicated that Germany and European Union officials were considering a plan to lend money from the European bailout fund to help rescue Spain's hobbled banks.
In an ordinary stock market, neither development would likely cause a ripple. But the market has been anything but ordinary lately, posting decline after decline amid the financial crisis in Europe and the slowing economy in the U.S.
Traders now are hanging on rumors and speculation, said Jeff Kleintop, chief market strategist at LPL Financial. But the talk was enough to convince some that the worst was over for now.
As a result, the Dow Jones industrial average surged 286.84 points to close at 12,414.79, its biggest gain since December 20. The rally started early and gathered force in the afternoon. The charge turned the Dow Jones industrial average positive for 2012 and erased the biggest loss of the year less than a week after it happened: the 275-point plunge set off by a dismal U.S. jobs report on Friday.
LPL Financial has started to pull back on bets against the S&P 500 and the euro. "We've decided it's time to declare victory," Kleintop said. "The next 10 percent move is not down, it's up," Kleintop said.
In other trading, the Standard & Poor's 500 rose 29.63 points to 1,315.13. The Nasdaq composite rose 66.61 points to 2,844.72.
Companies whose stocks have been clobbered the most over the past month had the best gains. Homebuilders rallied, helped by a strong earnings report from Hovnanian Enterprises and rising applications for new mortgages. Hovnanian's CEO said he sees signs that the housing industry may be entering the early stages of recovery. The Mortgage Bankers Association reported that applications for mortgages rose 1.3 percent last week, largely a result of more people trying to refinance their existing loans.
Hovnanian leapt 18 percent. PulteGroup Inc. surged 7 percent and Lennar Corp. 4 percent.
The gains were spread across the market. Only 11 companies in the S&P 500 dropped, and every industry group in the index rose, led by energy and financial companies. Roughly seven stocks rose for every one that fell on the New York Stock Exchange.
Jim Russell, chief equity strategist at U.S. Bank Wealth Management in Cincinnati, Ohio, said it's natural for the market to have a strong day after an extended beat-down. On such days, it's usually the companies that were hit the hardest that fare best.
"In market language, it's called a technical bounce," he said. "There's no bad news today, so the market goes up. Frankly, it's that simple."
U.S. markets followed major European indexes higher. Indexes rose 2.4 percent in the U.K. and France. Borrowing costs eased for Spain, another positive sign.
A Federal Reserve survey showed growth across the country. Hiring was steady, according to the Fed's "Beige Book." That's in marked contrast to the government's monthly jobs report, which said employers added the fewest jobs in a year last month.
The dollar dipped and Treasury yields rose as investors moved money out of defensive investments. The yield on the benchmark rose to 1.64 percent from 1.57 percent late Tuesday.
Among stocks making big moves:
_ Morgan Stanley jumped $1.08, 8 percent, to $13.94 amid reports that the Blackstone Group and other private equity firms may try to buy a stake in the bank's commodities business.
_ UnitedHealth Group gained $1.66, 3 percent, to $57.70 after the health insurer said it will raise its quarterly dividend from 16 cents to 21 cents per share . The board also approved a plan to buy back stock.
_ Tempur-Pedic International plunged $21.28, 49 percent, to $22.39. The mattress maker said it expects quarterly profits to fall by half compared to last year. Tempur-Pedic blamed its competitors' aggressive marketing campaigns and promotions for hurting its sales.