NEW YORK (AP) - A joint effort by five major central banks to support Europe's financial system set off a rally in U.S. stocks Thursday. Gold plunged and Treasury yields rose as traders sold the safest investments. Markets in Europe soared.
The European Central Bank, the U.S. Federal Reserve and three other central banks said Thursday they would provide European banks with unlimited dollar loans. The aim is to fend off worries that the banks could be weakened by their holdings of government bonds from Greece and other struggling European countries.
"It's a pretty powerful action," said Brian Gendreau, senior investment strategist at Cetera Financial Group. "And it's another piece of news that leads you to think the crisis in Europe could be on the road to resolution."
The Dow Jones industrial average rose 186.45 points, or 1.7 percent, to close at 11,433.18.
The Standard & Poor's 500 index rose 20.43 points, 1.7 percent, to 1,209.11. The index has jumped 4.8 percent this week but is still 10 points short of where it started the month.
Worries that European banks would have difficulty borrowing have hung over markets in recent weeks. It's a key element in the European debt crisis, rooted in the fear that cash-strapped governments in Greece and Italy won't pay back their debts.
European banks hold large amounts of debt issued by Greece and Italy, which they use as collateral to borrow dollars. The danger is that banks could lose their ability to raise money when other lenders won't take the collateral.
Europe's main stock markets jumped on the news. Germany's DAX and France's CAC-40 gained 3 percent. The euro rose against the dollar as confidence in Europe's shared currency increased.
Gold plunged $45, or 2.5 percent, to settle at $1,781 an ounce. Treasury prices fell, pushing their yields up. The yield on the 10-year Treasury note, which is used to set interest rates on a wide variety of loans, rose to 2.08 percent.
The Nasdaq rose 34.52 points, 1.3 percent, to 2,607.07. The index has jumped 5.6 percent so far this week and is up 1.1 percent in September. The Dow is down 1.6 percent this month, the S&P 0.8 percent.
Daniel Alpert, managing partner at Westwood Capital in New York, said the stock market has been overreacting to Europe's debt crisis, swinging in response to each new development. "
Every time there's news out of Europe that's not bad, the market reacts positively, and that's occurring on almost a nightly basis," he said. "You'd think the U.S. economy might be part of what the market trades on, but the fact of the matter is, today and recently, it's all been about Europe."
A move by just the Fed or the European central bank alone wouldn't have been nearly as effective in restoring confidence in European lenders. Traders that had laid bets against European banks may now think twice about doing so again, Gendreau said. "It's the rare speculator that wants to go up against a slew of central banks and all their resources," he said.
Bank stocks led the market higher. Goldman Sachs Group Inc. rose 3 percent to $107.97. Bank of America Corp. rose 4 percent to $7.33, the largest gain of the 30 stocks in the Dow. Morgan Stanley jumped 7 percent to $16.59 after reporting that its chairman, John Mack, would step down at the end of the year.
The stock market's gains were tempered by a mixed batch of economic reports. First-time claims for unemployment benefits rose by 11,000 to 428,000 last week. Economists had forecast a decrease. The New York and Philadelphia branches of the Federal Reserve also reported weak manufacturing in their respective regions.
On the positive side, factory output rose 0.5 percent in August, after increasing 0.6 percent in July. Autos and related products increased 2.6 percent, evidence that supply chain disruptions stemming from the Japan earthquake continued to ease.
None of the reports was compelling enough to change anyone's view about the economy, Gendreau said. The market still appears evenly split between those who believe the US is headed for a long stretch of slow growth and those who think it's about to slide into a recession.
Among stocks making big moves, HCA Holdings soared 12 percent to $20.84 after the largest U.S. hospital chain said it would buy back more than $1 billion of its stock from Bank of America.
Research in Motion Ltd. plummeted 16 percent in after-hours trading. The maker of BlackBerry mobile devices reported earnings and sales that came in far below Wall Street's estimates. The company faces tough competition from Apple Inc.'s iPhone and phones that use Google Inc.'s Android software.1
The Swiss bank UBS plunged 10 percent to $11.41 on news that a trader could cost the bank as much as $2.2 billion. Switzerland's largest bank warned that it could post a loss for the quarter as a result of the unauthorized trade.
Netflix fell 18 percent to $169.25, the biggest drop among stocks in the S&P 500 index, after the company said it expects fewer people to subscribe to its DVD-by-mail service as well as its streaming movie service.