The financial sector led a furious stock-market rally Thursday, with banks and brokerages snapping back from a deep selloff a day earlier, while commodities prices continued a rapid retreat from record levels.
The Dow Jones Industrial Average closed 261.66 points higher, up 2.2%, at 12361.32, led by jumps of greater than 8% in components American Express, Citigroup, J.P. Morgan Chase, and Bank Of America. The blue-chip barometer has swung widely this week, and Thursday's session marked the Dow's third straight move of at least 200 points. It retraced nearly all of Wednesday's 293-point loss, and was up 3.4% for the holiday-shortened week.
The Nasdaq Composite Index gained 2.2%, or 48.15 points, at 2258.11. The Standard & Poor's 500 gained 2.4%, or 31.09 points, at 1329.51, led by a 7.2% jump in its financial sector.
Shares of major investment banks soared. Goldman Sachs, Lehman Brothers and Morgan Stanley, which all reported stronger-than-expected earnings for the fiscal fist quarter this week, jumped. Merrill Lynch also surged after a steep fall on Wednesday. Fannie Mae shares surged 11.7% and Freddie Mac climbed 9%.
Even on days with big gains many investing pros have sounded a cautious note about the market's prospects in coming months. The Fed's interest-rate cuts and other efforts to untangle the credit markets have helped calm the waters, but the financial sector -- an important bellwether for the broad market -- has remained prone to wide moves as speculative money swings from one market to another.
"The Fed has been very creative and it has done a good job of getting risk capital on the move again," said strategist Stephen Wood, of the asset-management firm Russell Investment Group in New York. "But as long as risk capital is on the move, it can leave a particular area of the market just as quickly as it comes in."
But in a reminder of the risks still facing financials, CIT Group said it drew on its $7.3 billion in bank credit lines as it struggled to refinance debt that will be due in the next few months. The finance company's shares plunged by 17.3%, though they had been much weaker earlier in the day, falling more than 30%.
The availability of liquidity, or a critical mass of buyers and sellers needed to guarantee the smooth functioning of markets, has worried traders and analysts for weeks. They've complained that even players who have sufficient collateral on hand often are shying from conducting trades these days out of sheer worry, not because they can't afford it on paper.