NEW YORK — A broad rally broke a three-day losing streak in the stock market Wednesday as fears about Europe’s debt crisis ebbed.
Stocks rose sharply after a German court backed the country’s role in bailing out other European nations. The Dow Jones industrial average jumped 200 points in the first hour of trading and continued to climb throughout the day, ending up 275 points.
The afternoon gains came after Italy’s Senate approved a deficit-cutting package and the Federal Reserve reported that U.S. business conditions are improving.
The Dow and other U.S. indexes fell over the previous three days on worries over weakness in the U.S. job market and concerns that Europe’s debt woes could lead to a global economic recession.
“The market has been pricing in an out-and-out recession, so any hints that policy issues might be solved is a plus,” said Brian Gendreau, market strategist at Cetera Financial Group.
The Dow surged 275.56 points, or 2.5 percent, to close at 11,414.86. All 30 stocks in the Dow average rose. The Standard and Poor’s 500 jumped 33.38, or 2.9 percent, to 1,198.62. All 10 company groups that make up the S&P index rose. The Nasdaq composite shot up 75.11, or 3 percent, to 2,548.94.
The German court ruling also pushed the prices of Treasury securities lower as investors were more willing to hold risky assets such as stocks. Treasury prices have been rising over the past week, sending their yields lower, as demand for lower-risk investments increased. The yield on the 10-year Treasury note rose to 2.05 percent. Its price fell 50 cents per $100 invested.
Historically low Treasury rates are prompting some institutional investors to see stocks as a better value. The yield on the benchmark 10-year Treasury note began plunging from just over 3 percent on July 27 to 2.2 percent by the end of August.
Investors were piling into lower-risk assets as the stock market swung wildly. The yield has hovered around 2 percent this week. An investor who buys the S&P 500 index, meanwhile, earns a 2.38 percent yield in the form of dividends.
“Market sentiment has actually been worse than economic data lately, and now you are seeing institutional investors saying, ‘I can get a better yield from the S&P 500 than I can from a 10-year Treasury,’ ” said Howard Ward, portfolio manager of the GAMCO Growth Fund.
