Stocks recharge rally

NEW YORK (CNNMoney.com) -- Stocks built on the previous session's tremendous rally Wednesday, as oil prices backed off of all-time records and investors continued to applaud the Federal Reserve's plan to restore calm to the credit markets.

The Dow Jones industrial average (INDU) gained around 130 points or 1.1% almost two hours into the session. The broader Standard & Poor's 500 (SPX) index added almost 1% and the Nasdaq composite (COMP) added 1.2%.

On Tuesday, the Dow jumped almost 417 points - its fourth-biggest one-day point gain ever and the biggest one-day point gain since July 2002. In percentage terms, the gain of 3.55% was the best since March 2003.

The S&P 500 and Nasdaq both surged about 4% on Tuesday as well, turning in their biggest one-day percentage gains since May 2002 and March 2003, respectively.

Underpinning yesterday's advance was the Fed's decision to lend up to $200 billion to banks in an effort to loosen up tight credit markets.

The news continued to propel the markets after a mixed morning Wednesday. Big bank stocks including Citigroup (C, Fortune 500) and JP Morgan (JPM, Fortune 500) led the advance.

Investors also benefited from a drop in oil prices. Crude prices backed off of record highs after the government's weekly oil inventory report showed a surprise jump in crude supplies. Meanwhile gas prices hit an all-time high.

Company news. Humana (HUM, Fortune 500) sharply cut its first-quarter sales and earnings forecast due to higher prescription drug claims. Shares tumbled 26% in morning trading.

Fitch cut its outlook on fellow healthcare company WellPoint (WLP, Fortune 500) to "negative" from "stable." WellPoint warned early this week that 2008 earnings won't meet forecasts, due to higher medical costs and lower-than-expected subscribers.

Government lenders Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500) could have to issue at least $10 billion in new stock this year to raise money due to the ongoing fallout in the housing market, the Wall Street Journal reported Wednesday. However, Freddie Mac's chief financial officer said that no capital raising has been planned.

Meanwhile, Freddie Mac's CEO, speaking at a conference, said that the housing market is the worst in about a century, according to reports.

JP Morgan downgraded a slew of airlines, saying that record oil prices will cause the companies to face record fuel costs. Companies cited included AMR (AMR, Fortune 500) and Northwest (NWA, Fortune 500), both of which were cut to "underweight" from "overweight." Delta Air Lines (DAL, Fortune 500) and Continental Airlines (CAL, Fortune 500) were cut to "neutral" from "overweight," the AP reported.

On the upside, Dow component Caterpillar (CAT, Fortune 500) said late Tuesday that 2008 sales and earnings will top earlier forecasts. The heavy equipment maker also lifted its long-term sales goal, saying its looking for profit to rise between 15% and 20% through 2008. Shares rose 4%.

Other markets. U.S. light crude oil for April delivery fell $1.05 to $107.70 a barrel on the New York Mercantile Exchange. Oil hit an all-time record of $109.16 a barrel earlier in electronic trading.

COMEX gold for April delivery added $1.50 to $977.50 an ounce.

In currency trading, the dollar fell versus the euro but was off its worst levels of the day after touching a fresh record low against the European currency earlier. The greenback fell versus the yen.

Treasury prices inched higher after plunging Tuesday. The advance lowered the yield on the benchmark 10-year note to 3.56% from 3.59% late Tuesday. Bond prices and yields move in opposite directions.

International markets got a big lift. Asian stocks finished the session higher and European markets rose in afternoon trading.