Wall Street closed on a high amid hopes of more government spending to stave off recession.
The Dow Jones index ended up 4.7 per cent. The Standard and Poor finished up 4.8 per cent. The Nasdaq rose 3.4 per cent.
Credit markets showed signs of easing as the Libor rate, a critical measure of lending between banks, fell sharply.
Alec Young, Equities Strategist at Standard and Poor’s, said: “We are seeing some pretty significant signs that recent global policy actions are starting to help unfreeze the credit markets and I think that has positive implications for global growth and corporate earnings and stocks are rallying as a result.”
The surge in stocks was reflected in energy shares which rose as oil gained on the expectation that OPEC will act to boost prices.
Most major stocks climbed after US Federal Reserve Chairman Ben Bernanke told the House of Representatives a fresh round of stimulus would help.
“If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers. Such actions might be particularly effective at promoting economic growth and job creation,” he said.
Despite the renewed optimism, some analysts still fear the US economy will carry on shrinking into next year, meeting the definition of a recession, two quarters of negative growth.
Bernanke hinted at the prospect saying the American economy was in a very serious slowdown which, “has very serious consequences for the public”.