The Dow Jones industrial average rose 126.87 to close at 6,473.64, a jump of 2 percent. That was the best one-day gain in the blue-chip index since Oct. 21, 1987, when it rose 186.84, or 10.1 percent, in a rebound from the crash of Oct. 19. It was far from the largest percentage gain, however.
Even with the sharp rebound from an early-December selloff, the Dow remained substantially below its all-time closing high of 6,547.79 on November 25.
Hugh Johnson, chief market strategist at First Albany Corp., attributed the day's strong gains to aggressive buying by short coverers, investors who had bet on a market decline but had to reverse their bets by buying as they saw prices begin to rise.
"The declines we saw last couple of weeks, just like all the declines in the last five years, was short-lived," Johnson said. "It gave the bears just enough encouragement to short stocks, and lo and behold, the mutual funds come back in and squeezed the you-know-what out of the shorts."
Extra volatility was provided by tomorrow's anticipated triple expiration of stock options and futures contracts, traders said.
The Dow barreled sharply higher from the opening bell, prompting the New York Stock Exchange to impose a 50-point collar on computer trading at 10:25 a.m.
Stocks rose with bonds after the government revised unemployment claims sharply upward and said the nation's trade deficit had narrowed by 30 percent in October. Also boosting bonds was a report from the Philadelphia Federal Reserve showing a decline in the area's general business activity in December to minus 2.2, from a November reading of 6.4.
In the afternoon, news of very strong demand for the Treasury auction prompted a doubling in the Dow's already strong daily gains. The Treasury sold $12.50 billion of five-year notes at 6.165 percent, up from 5.95 percent in November. The 30-year Treasury bond was up 1 13/32 point late in the day, pushing its yield, which moves opposite the price, down to 6.59 percent from 6.65 percent yesterday.
Advancing issues outnumbered decliners by 7 to 3 on the New York Stock Exchange, with 1,836 up, 777 down and 737 unchanged. NYSE volume was 522.32 million shares, vs. 519.84 million yesterday.
The Standard & Poor's 500-stock index jumped up 14.23 to 745.77, and the NYSE's composite index rose 6.99 to 392.16
The Nasdaq composite index climbed 10.49 to 1,295.87, and the American Stock Exchange index rose 3.57 to 578.53.
Consumer stocks, such as healthcare, food and beverages and household products, all rose, as well as financial stocks as interest rates tumbled.