U.S. stocks' stunning gains Tuesday were matched or exceeded by European and Latin American markets, as the bulls once again took control.
The dollar also jumped against major currencies, bolstered by U.S. stocks' surge and remarks from a senior Japanese official indicating little alarm at the dollar's recent advance.
The Dow Jones industrials' 257.36-point gain, a 3.4% rise to 7,879.78, was the biggest percentage jump since 1991. It followed several rough weeks for the blue-chip index, which had fallen 7.7% from its Aug. 6 all-time high. (Main story, A1.)
The broad market lagged the Dow's surge Tuesday, but most key indexes were still up sharply. The Standard & Poor's 500 index jumped 3.1% to 927.58, the Nasdaq composite leaped 1.9%, and the Russell 2,000 index of smaller stocks rose 1.1%.
The Russell index in recent sessions had hit record highs, even as the Dow sank.
Traders said that many institutional investors, returning from the Labor Day holiday weekend, were putting cash to work at the start of the month.
But because trading volume remained relatively moderate, at 497 million shares on the New York Stock Exchange, some analysts were skeptical about the rally's staying power.
They also noted that "short covering" probably helped boost the market Tuesday: Bearish traders who had sold stocks short, betting on a continuing decline, may have rushed in to buy shares to close out their positions.
Still, winners topped losers by 22 to 7 on the NYSE and by 27 to 15 on Nasdaq.
Bonds helped, as yields eased on economic data that suggested a slowing economy. The 30-year Treasury bond yield fell to 6.55% from 6.60% on Friday.
"The environment remains fairly positive for bonds--inflation is extremely well-behaved," said Lennart Carlson, who oversees $20 billion of bonds at Aeltus Investment Management in Hartford, Conn.
Traders said the dollar's performance also helped boost U.S. bonds. In New York trading, the dollar jumped to 121.47 Japanese yen from 120.80 on Friday and to 1.834 German marks from 1.809.
The dollar's advance started in Tokyo, where it rose to a four-month high after Finance Minister Hiroshi Mitsuzuka told reporters an exchange rate of about 120 yen was appropriate, given the condition of the Japanese economy.
A strong dollar makes it more likely that foreign investors will favor U.S. financial assets.
Meanwhile, gains in key European markets helped stoke Wall Street's fire. Germany's blue-chip DAX index surged 1.4% on hints that the German Bundesbank won't boost interest rates any time soon.
In France, the key stock index soared 4.1%, while the main Dutch index zoomed 4.9%.
Wall Street's advance, in turn, lifted the Brazilian market 9.4% and the Mexican market 2.8%.
Asian markets, by contrast, were mixed.
Among Tuesday's highlights:
* The Dow's strongest components included several popular stocks that had been beaten down by profit-taking last month, including Procter & Gamble, up $4.88 to $138; Merck, up $3.83 to $95.69; General Electric, up $3.63 to $66.19; and Coca-Cola, up $2.56 to $59.88.
But "consumer non-cyclicals had been the worst-performing sector for the last four weeks. Today it's the best-performing sector," said one analyst. "That says that in large part, this is bottom-fishing or bargain-hunting, and makes us question how sustainable [the rally] is."
* Financial services companies, which enjoy a stronger lending business when interest rates aren't rising, were also prominent among the Dow's gainers: J.P. Morgan rose $4.31 to $111.81 and American Express gained $2.31 to $80.06.