NEW YORK — Stocks rallied Thursday after central banks in Europe and the U.S. announced a joint move to support European banks. Markets in Europe soared. Gold dropped and Treasury yields rose as traders moved out of the safest investments.
The European Central Bank, the U.S. Federal Reserve and three other central banks said Thursday they would provide European banks with dollars in three loan installments.
"It's a pretty powerful action," said Brian Gendreau, senior investment strategist at Cetera Financial Group. "And it's another piece of news that leads you to think the crisis in Europe could be on the road to resolution."
Worries that European banks would struggle to raise dollars in short-term credit markets have hung over banks in recent weeks. European banks hold large amounts of debt backed by governments in Greece and Italy, the cause of the region's debt crisis. Banks use those bonds as collateral to borrow dollars. Investors have worried that banks could struggle to raise money because those bonds have lost value.
The Dow Jones industrial average rose 163 points, or 1.5 percent, to 11,409 at 3:15 p.m. The Dow and other indexes were headed for a fourth straight day of gains. The last time that happened was the last week in August.
The Standard & Poor's 500 index was up 18 points, 1.5 percent, to 1,206. The Nasdaq rose 32 points, or 1.3 percent, to 2,605.
Europe's main stock markets jumped on the news. Germany's DAX and France's CAC-40 gained 3 percent.
Gold dropped 2.5 percent to settle at $1,781 an ounce. Treasury prices fell, pushing their yields up. The yield on the 10-year Treasury note, which is used to set interest rates on a wide variety of loans, rose to 2.08 percent.
A move by just the Fed or the European central bank alone wouldn't have been nearly as effective in restoring confidence in European lenders. Traders that had laid bets against European banks may now think twice about doing so again. "It's the rare speculator that wants to go up against a slew of central banks and all their resources," Gendreau said.
Bank stocks led the market higher. Goldman Sachs Group Inc. and Bank of America Corp. rose 3 percent. Morgan Stanley jumped 6 percent after reporting that its chairman, John Mack, would step down at the end of the year.
The stock market's gains were tempered by a mixed batch of economic reports. First-time claims for unemployment benefits rose by 11,000 to 428,000 last week. Economists had forecast a decrease. The New York and Philadelphia branches of the Federal Reserve also reported weak manufacturing in their respective regions.
On the positive side, factory output rose 0.5 percent in August, after increasing 0.6 percent in July. Autos and related products increased 2.6 percent, evidence that supply chain disruptions stemming from the Japan earthquake continued to ease.
None of the reports was compelling enough to change anyone's view about the economy, Gendreau said. The market still appears evenly split between those who believe the US is headed for a long stretch of slow growth and those who think it's about to slide into a recession.
Among stocks making large moves, HCA Holdings soared 11 percent after the largest U.S. hospital chain said it would buy back more than $1 billion of its stock from Bank of America.
The Swiss bank UBS plunged 10 percent on news that a trader could cost the bank as much as $2.2 billion. Switzerland's largest bank warned that it could post a loss for the quarter as a result of the unauthorized trade.
Netflix fell 18 percent, the biggest drop among stocks in the S&P 500 index, after the company said it expects fewer people to subscribe to its DVD-by-mail service as well as its streaming movie service.
A show of support by Germany and France for Greece lifted stocks on Wednesday. The Dow has jumped 3 percent over three straight days of gains but is still down 2 percent for the month.