The Dow gains 379 points, Nasdaq surges 7% and S&P 500 rallies 6.4% on Citigroup and possible limit on short selling.
NEW YORK -- Financial shares led a broader rally Tuesday - with all three major indexes logging their best day this year - after Citigroup cooled some worries about its wellbeing and regulators said they may reinstate a trading rule.
The Dow Jones industrial averagegained 379 points, or 5.8%, according to early tallies. It was the Dow's biggest one-day point gain since Nov. 24, 2008.
The S&P 500ndex gained 43 points, or 6.4%. It was the biggest one-day point gain since Dec. 16, 2008.
The Nasdaq composite climbed almost 90 points, or 7%. It was the biggest one-day point gain since Nov. 13, 2008.
Citigroup shares jumped 38%, leading a broader rally in the financial sector. Bank of America , Wells Fargo , JPMorgan Chase , Goldman Sachs and Morgan Stanley were among the stocks rallying. The KBW Banksector index climbed 15.6%.
But the rally was broad based, with all 30 Dow components advancing. In addition to the Dow's financial stocks, other big gainers included Alcoa , Caterpillar , General Electric and General Motors .
A variety of big tech shares jumped, too, including Cisco Systems , eBay , Dell , Google and Dow component Intel .
"Citigroup got us started, but then Barney Frank came out and said that the uptick rule could be reinstated and that helped a lot too," said Tom Schrader, managing director at Stifel Nicolaus.
Rep. Barney Frank, D-Mass., the head of the U.S. House Financial Services Committee told reporters Tuesday that the Securities and Exchange Commission would restore the " The SEC said it could reinstate the rule as early as next monht.
The uptick rule -- which was in place until July 2007 -- limited short sellers from adding to the downward momentum of a stock that is already plunging. In short selling, traders make money when the price of a stock falls.
Critics say the ending of the uptick rule has added to the selling in the financial sector stocks over the last year and a half.
Stocks were also bouncing back in response to the recent bloodletting in the markets.
Year-to-date, the Dow and S&P 500 were down around 25% as of Monday's close, while the Nasdaq was down around 17%. In light of the massive selloff, analysts have been saying for some time that the market is due for a sharp, bear market rally. That seemed to be taking hold Tuesday morning.
The rally is an oversold bounce off these recent levels, Schrader said, but it also has the potential to usher in a bigger advance within the ongoing downtrend. That was also the case after the stock market hit lows in both October and November of last year.
"There's a chance that, if this gets enough gas, it could move up a lot more," Schrader said. "There's tons of cash sitting in money markets and if people start to think they're going to miss out, they're going to want to jump back in."
The Dow and S&P 500 ended at 12-year lows Monday and the Nasdaq at 6-year lows after Merck's $41 billion of Schering-Plough failed to distract investors from worries about the economy.
March 10 is a dubious anniversary for the Nasdaq. It's the 9-year anniversary of the day it hit its all-time high of 5048.62 at the height of the tech boom. As of Monday's close, the tech-heavy index was down 75% from its peak.
Citigroup: CEO Vikram Pandit, in a letter to employees, said the bank was profitable year-to-date and that it is confident about its capital position. The letter, filed with the Securities and Exchange Commission, was a relief to investors after Citi's share price broke the buck as the company has struggled to stay afloat. However, most of Wall Street with Pandit's comparatively optimistic outlook.
The government has stepped in repeatedly to bolster Citi, most recently last week when it agreed to take up to a 36% stake in the company. Pandit's letter said that, so far, the first quarter of 2009 has been the best since the third of 2007, the last time Citi was profitable. Yet, the letter did not specify how much credit losses and other one-time items would offset the profit.
Bernanke: Investors also weighed comments from Federal Reserve Chairman Ben Bernanke, who called for an overhaul of the regulatory system. Speaking in the morning at the Council on Foreign Relations in Washington, the Fed chief said that companies deemed "too big to fail" need to be subject to stricter regulation so that a crisis like the current one doesn't happen again.
In comments made after his speech, Bernanke also said he does not support the suspension of the mark-to-market accounting rule, but rather improvements in it. Critics say the rule has exacerbated the financial crisis by forcing banks to value assets at current fire sale prices.
The Securities and Exchange Commission is not planning to suspend the rule, Reuters reported. A congressional panel will exam the rule Thursday.
Company news: Dow component United Technologies cut its 2009 revenue and earnings-per-share forecast, citing the global recession. The company also said it was 11,600 jobs this year, or about 5% of the workforce.
Market breadth was positive. On the New York Stock Exchange, winners topped losers twelve to one on volume of 1.48 billion shares. On the Nasdaq, advancers beat decliners four to one on volume of 1.92 billion shares.
Bonds: Treasury tumbled, raising the yield on the benchmark 10-year note to 2.97% from 2.87% Friday. Treasury prices and yields move in opposite directions.
Lending rates . The 3-month Libor rate rose to 1.33% from 1.31% Monday, while the overnight Libor rate held stead at 0.33%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.
Other markets: In trading, Asian markets ended mostly higher, with the exception of the Japanese Nikkei. European markets rallied.
In trading, the dollar fell versus the euro and the yen.
U.S. light crude oil for April delivery fell $1.36 to settle at $45.71 a barrel on the New York Mercantile Exchange.
COMEX goldfor April delivery fell $22.10 to settle at $895.90 an ounce