"The news is relieving the market of some of its worst nightmares, since the loss could have been bigger and some of the actions taken by the bank are actually helping confidence," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The feared disaster wasn't all that."
The Dow Jones industrial average (INDU) jumped 204 points, or 1.6%, the S&P 500 (SPX) added 22 points, or 1.7%, and the Nasdaq (COMP) climbed 42 points, or 1.5%. The day's gains were the best since June 29.
Investors also reacted to comments from Federal Reserve Bank of Atlanta President Dennis Lockhart that stimulus action may be coming down the pike.
"My support for the current stance of policy rests on a forecast that sees a step-up of output and employment growth by year-end and into 2013," he said in prepared remarks to the Mississippi Economic Council. "If the economy continues on the track indicated by the most recent incoming data and information, that forecast will become untenable, as will the policy premises underlying it. This is a challenging juncture for policymaking."
Stocks also gained traction on disappointing economic numbers out of China, as investors grew hopeful that the weakness could prompt additional stimulus measures.
In the second quarter, GDP in China grew at an annual pace of 7.6%, the lowest rate in three years and a deceleration from the 8.1% growth rate it saw the previous quarter.
The dollar lost ground against the euro, British pound and Japanese yen.
Oil for August delivery rose $1.02 to settle at $87.10 a barrel.
Gold futures for August delivery rose $26.70 to settle at $1,592.00 an ounce.
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