NEW YORK (CNNMoney.com) -- Stocks surged over 2% Wednesday as signs of economic strength in the United States and China tempered worries about the European debt crisis.
It was the biggest one-day gain for the Dow since early September, and came after stocks ended November on a sour note, with all three major gauges marking declines for the month.
Stocks opened sharply higher Wednesday as investors cheered a batch of upbeat economic reports, including a strong gain in private-sector payrolls and better-than-expected auto sales.
The rally gained momentum after economists at Goldman Sachs (GS, Fortune 500) raised their forecast for U.S. growth next year to 2.7% from 1.9%. The Federal Reserve's latest snapshot of economic conditions showed the nation's gradual recovery continued in October and November.
"There's a growing sense the economy isn't doing as badly as was priced in three months ago," said Brian Gendreau, market strategist at Financial Network. "All it took was mixed news to price out the double-dip recession, now we're getting genuinely good news."
The improved outlook for U.S. growth temporarily overshadowed concerns about the debt problems facing some European economies. Those jitters were further eased by comments from the head of the European Central Bank, which raised speculation that the ECB is prepared to take additional steps to aid the European economy.
Meanwhile, investors also welcomed a robust reading on manufacturing activity in China, which helped lift shares of major U.S. multinationals, as well as companies in the industrial and materials sectors.
All 30 Dow issues were higher. Home Depot (HD, Fortune 500) was biggest gainer on the blue-chip average, rising nearly 5%. United Technologies (UTX, Fortune 500), Microsoft (MSFT, Fortune 500) and Alcoa (AA, Fortune 500) all gained over 3%.
"There is some chance that this is an effort to get the rally back on track," said Bruce McCain, chief investment strategist at Key Private Bank, in reference to Wednesday's advance.
Stocks powered higher in September and October, before worries about eurozone debt damped enthusiasm in late November.
While it remains to be seen if the market can hold Wednesday's gains in the coming days, "there is evidence that the risk trade is coming back into the market," said McCain.
Looking ahead, the ECB is scheduled to release a policy statement early Thursday at the end its regularly scheduled meeting, and investors are expecting some form of stimulus to be unveiled.
The ECB statement is "the next big hurdle" for stocks, said Paul Zemksy, head of asset allocation at ING Investment Management.
"All expectations are for something positive to come out of the ECB meeting," he said. "If not, it could be a rough day."
Economy: Monthly data from payroll processing firm ADP showed an unexpectedly high gain of 93,000 private sector jobs in November.
It marked the biggest increase in three years and overshadowed an earlier report on planned job cuts in November from outplacement firm Challenger, Gray & Christmas.
Separately, the Institute of Supply Management's index of manufacturing activity edged down slightly in November to 56.6 from 56.9 the month before. Any reading above 50 signals expansion in the sector.
A government report showed that construction spending rose 0.7% in October, beating analysts' expectations of a 0.5% decrease.
The Federal Reserve's Beige Book, a snapshot of economic conditions across the central bank's 12 districts, showed that growth continued to improve in most U.S. regions from early October to mid-November.
World markets: Asian markets all ended higher after a couple of reports showed strength in China's economy. The Shanghai Composite added 0.1%, the Hang Seng in Hong Kong gained 1% and Japan's Nikkei rose 0.5%.
European stocks followed Asian market's rally. Britain's FTSE 100 rose 2%, the DAX in Germany added 2.6% and France's CAC 40 ticked up 1.6%.
The advance in Europe came after comments from ECB chairman Jean-Claude Trichet raised bets that the central bank could announce plans to buying more assets, a strategy known as quantitative easing, after a policy meeting Thursday.
"Trichet referred to bond purchases as 'ongoing,' which raises questions over whether the ECB will unleash its own version of quantitative easing," Ashraf Laidi, chief market strategist at CMC Markets, said in a note to clients.
If it does decide to buy assets, the ECB would be following in the footsteps of the Fed, which pledged last month to buy another $600 billion worth of Treasury bonds.
Shares of Bank of America (BAC, Fortune 500) were up 1.3% after the bank dismissed speculation that whistle-blower WikiLeaks had information that could be damaging to the company. BofA shares fell 3% on Tuesday.
Oil for January delivery jumped $2.63 to $86.73 a barrel.
Gold futures for February delivery rose $2.20 to $1,387.20 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 2.92% from 2.81% late Tuesday.
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