Investors bought in to the Federal Reserve's new plan to stimulate the economy, pushing broad stock market indexes to their highest levels since the worst of the financial crisis more than two years ago.
The central bank's decision to pour an additional $600 billion into the economy by buying Treasury bonds has been greeted with some skepticism and criticism as well as praise, but investors appeared to conclude Thursday that there was no use in fighting the Fed.
"The Fed wants these markets to go up — and that's exactly what they're doing," said Neil Soss, chief economist at Credit Suisse.
As stocks surged, long-term interest rates and the dollar slumped — all moves that could help the country's economy.
The Dow Jones industrials jumped 219.71 points, or 2%, to 11,434.84. The broader Standard & Poor's 500 index, used as a benchmark for many funds held in 401(k) accounts, climbed 1.9% to its highest level since Sept. 19, 2008, the week Lehman Bros. collapsed.
The two indexes are up nearly 20% from lows reached four months ago after concern about the pace of the economic recovery morphed into fear of a double-dip recession.
Such fears seemed a distant memory Thursday. Ryan Detrick, an analyst at Schaeffer's Investment Research, said the Fed's announcement Wednesday enabled investors to see the overlooked strengths in the economy.
"The expectations are still too low," he said. "We see a lot of positives going into next year."
The resurgent optimism, however, could be tested Friday morning when the Labor Department releases its jobs report for October. In fact, the department provided a downbeat note Thursday when it said initial claims for unemployment benefits, which had been falling, rose last week.
In the bond market, the yield on the 10-year Treasury note slumped to 2.48% from 2.63%. The yield on five-year T-notes plunged to its lowest level in at least five decades to 1.02% from 1.12% on Wednesday.
Showing that lower rates may also benefit corporate borrowers, the average yield on an index of junk bonds tracked by KDP Investment Advisors slid below 7% for the first time since 2005.
An index of the dollar's value, meanwhile, sank 0.8% to its lowest level this year, benefiting U.S. exporters by making their goods more affordable overseas.
The falling greenback helped boost commodity prices, which some analysts pointed to as a dangerous side effect of the Fed's easy-money policy. An index of 19 major commodities rocketed 2.4% on Thursday to a two-year high. And gold, the classic hedge against inflation, soared $45.60 to a record $1,382.70 an ounce.
Also helping the market was a further stoking of Wall Street's hopes that Washington will be much friendlier toward business interests in the wake of the huge Republican victory in Tuesday's election.
"There's a change in expectations of what's coming from Washington," said Marshall Front, head of money manager Front Barnett Associates in Chicago.
White House Press Secretary Robert Gibbs said Thursday that President Obama was open to discussing at least a temporary extension of all the income tax cuts scheduled to expire Jan. 1, including those for people earning more than $250,000.
When the Fed's plan was formally announced late in Wednesday's trading session, the response was somewhat muted — the Dow closed up 26 points but nonetheless at a two-year high — in part because of fear the "quantitative easing" effort might prompt competing campaigns by other countries that would nullify some of the Fed program's benefits.
Early Thursday, however, the Bank of England and the European Central Bank announced they would not be doing further large-scale asset purchases.
The excitement on Wall Street drowned out the voices of economists worried that the infusion of money from the Fed wouldn't reach the real economy — or would lead to problematic inflation.
Andrea Jao, an analyst at Cowen & Co., puts herself in the camp of long-term worriers but says the markets in the short term have seemingly unstoppable momentum.
"Take advantage of this now," she said, "because the benefit to U.S. equities could be short-lived."
Times staff writer Tom Petruno contributed to this report.