A move by the world's central banks to lower the cost of borrowing exhilarated investors Wednesday, sending the Dow Jones industrial average soaring 490 points and easing fears of a global credit crisis similar to the one that followed the 2008 collapse of Lehman Brothers.
It was the Dow's biggest gain since March 2009 and the seventh-largest of all time.
Large U.S. banks were among the top performers, jumping as much as 11 percent. Markets in Europe surged, too, with Germany's DAX index climbing 5 percent.
"The central banks of the world have resolved that there will not be a liquidity shortage," said David Kotok, chairman and chief investment officer of Cumberland Advisors. "And they have learned their lessons from 2008. They don't want to take small steps and do anything incrementally, but make a big bold move that is credible."
Wednesday's action by the banks of Europe, the U.S., Britain, Canada, Japan and Switzerland represented an extraordinary coordinated effort.
But amid the market's excitement, many doubts loomed. Some analysts cautioned that the banks did nothing to provide a permanent fix to the problems facing heavily indebted European nations such as Italy and Greece. It only buys time for political leaders.
"It is a short-term solution," said Jack Ablin, chief investment officer at Harris Private Bank. "The bottom line on any central bank action is that it papers over the problems, buys time and in some respects takes pressure from politicians. ... If nothing's done in a week, this market gain will disappear."
Banks stocks soared as fears about an imminent disaster in the European financial system ebbed.
American and European banks are connected by contracts, loans and other financial entanglements, meaning that a European financial crisis would punish U.S. bank stocks. The brighter outlook that emerged Wednesday relieved some investor concerns.
JPMorgan Chase & Co. jumped 8.4 percent, the most of the 30 Dow components. Morgan Stanley rose 11.1 percent and Citigroup Inc. 8.9 percent.
Worries about the financial system -- and the reluctance of the European Central Bank to intervene -- have caused borrowing rates for European nations to skyrocket. Wednesday's decision reduced the rates banks pay to borrow dollars -- a move that aims to make loans cheaper so that banks can continue to operate smoothly.
European banks rely on dollars to cover loans they have promised to consumers and businesses and pay for investments in U.S credit markets. They traditionally have tapped short-term funding from U.S money market mutual funds and other banks. But money market funds have been pulling dollars from Europe in recent months, and lending between banks has dried up.
In response to the new rates, the euro rose sharply, while U.S. Treasury prices fell as demand weakened for ultra-safe assets.
The Dow rose 4.2 percent to close at 12,045. It has more than gained back the 564-point slump it had last week. It is up 813 points, or 7.3 percent, so far this week. The last time the Dow closed up more than 400 points was Aug. 11.
The Standard & Poor's 500 closed up 52, or 4.3 percent, at 1,247. The Nasdaq composite index closed up 105, or 4.2 percent, at 2,620.
Seven stocks rose on the New York Stock Exchange for every one that fell. Volume was heavy at 5.7 billion shares.
Surging commodity prices lifted the stocks of companies that make basic materials such as steel. United States Steel Corp. gained 15.3 percent, the most in the S&P 500. AK Steel Holding Corp. added 13.4 percent. Energy stocks also leaped. Alpha Natural Resources Inc. rose 15.2 percent, Peabody Energy Corp. 14.3 percent.
The act by the central banks took some pressure off the financial system, which has signaled in recent days that many banks were losing faith in their trading partners. And it offered hope that more help was on the way.
"People are taking comfort that it's globally coordinated," said Peter Tchir, who runs the hedge fund TF Market Advisors.
The move would have a limited effect, he said, "but the bulls are anticipating that this is just the beginning of central bank and other actions" to ease market pressures.
Any successful plan would have to reduce borrowing costs for Italy and other indebted nations, Tchir said. Italy's borrowing costs edged lower Wednesday, but the nation was still paying more than 7 percent interest for 10-year borrowing -- a dangerously high level.
European finance ministers in Brussels have been meeting since Tuesday but have failed to deliver a clearer sense of how the currency union will proceed. More leaders gather next week on Friday for a summit.
In another attempt to free up cash for lending, China on Wednesday reduced the amount of money its banks are required to hold in reserve. It was the first easing of monetary policy in three years, and analysts are expecting more.
Growth in China, which has the largest economy after the European Union and the U.S., could be crucial to sustaining any recovery after the debt crisis.
A string of positive U.S. economic news also propelled the market higher. An index measuring manufacturing in the Midwest surged to a seven-month high; private company hiring jumped in November to the highest level this year, according to payroll company ADP; and the number of contracts to buy homes jumped in October to the highest level in a year.