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.
