U.S. stocks rebounded from the worst two-day skid since 2003 after Wall Street's biggest securities firms said the sell-off made banks, homebuilders and retailers relative bargains.
Treasuries dropped by the most in two weeks and the dollar weakened vs. the euro as investor aversion to riskier assets eased as equities and emerging market securities gained.
The Standard & Poor's 500 Index added 14.96, or 1 percent, to 1,473.91. The Dow Jones Industrial Average advanced 92.84, or 0.7 percent, to 13,358.31. The Nasdaq Composite Index rose 21.04, or 0.8 percent, to 2,583.28.
"We're positive on the market," said Joe Veranth, who oversees $3-billion at Dana Investment Advisors Inc. in Brookfield, Wis. "At 15 times this year's earnings, we think the market is a pretty good bargain."
Nordstrom Inc., the Seattle-based luxury retailer, climbed the most in almost two years. Wells Fargo & Co., JPMorgan Chase & Co. and American Express Co. carried financial shares to their biggest gain since July 12. KB Home gained for the first time in seven days after Citigroup said "hysteria" had driven the 35 percent drop in shares of construction firms this year.
Benchmark indexes in South Korea, China, Brazil and Mexico also rallied, while shares in Europe fell for a fifth day. The S&P 500 rose following its steepest weekly retreat since September 2002, while the Dow recovered from its biggest drop since March 2003.
After last week's rout, the S&P 500 is valued at 15.5 times estimated profit, the lowest since January 1991 when compared with actual earnings, according to Bloomberg data.
A gauge of momentum suggested that a rally that sent yields to the lowest since May 17 was poised to stall. U.S. government debt last week posted its biggest weekly advance in 10 months on speculation the subprime mortgage crisis will slow the economy. Treasury volatility was near the highest since March 2005.
"We're adjusting back from fear to greed," said Larry Dyer, an interest rate strategist in New York at HSBC Securities USA Inc., one of the 21 primary dealers that trade with the Federal Reserve. "Equities are doing a bit better."