Stocks in the United States rose more than 10% on Tuesday as investors scooped up beaten-down shares on optimism that the US Federal Reserve and other central banks will cut interest rates further.
Hopes for a rate cut grew at midday after a newspaper reported the Bank of Japan is considering lowering rates.
The report in the Nikkei newspaper in Japan pulled the yen down more than 5% against the dollar.
A recent rally by the yen has forced an unwinding of the so-called "carry trade" - in which investors borrowed yen at low interest rates to finance investments in higher-yielding assets, such as US stocks.
The rally was despite a fall in US consumer confidence to a record low in October due to the financial crisis.
Shares of capital-intensive companies were up over 14% as a result. OIl companies and Boeing also rose. Wal-Mart also rose by 11%.
The Dow Jones industrial average jumped 889.35 points, or 10.88%, to 9,065.12.
Standard & Poor's 500 Index surged 91.59 points, or 10.79%, to 940.51. The Nasdaq Composite Index ran up 143.57 points, or 9.53%, to 1,649.47.
It was the second-biggest point gain ever for the Dow and the S&P.
Trading was moderate on the New York Stock Exchange: about 1.73 billion shares changed hands - below last year's estimated daily average of roughly 1.90 billion. Most of the volume was in the last hour of trading.
About 2.77 billion shares were traded on the Nasdaq - above last year's daily average of 2.17 billion.
Rate cuts expected
Investors expect the Fed to cut rates - now at 1.5% - by at least a further 50 basis points.
The Bank of England is also widely expected to cut rates by another 50 basis points to 4% next week. The BoE has already cut interest rates twice this year.
European Central Bank president Jean-Claude Trichet said on Monday the ECB could cut rates at its next meeting on 6 November.
The bank cut its main lending rate by 0.50 percentage points to 3.75% on 8 October as part of a co-ordinated action by a number of central banks to avert a collapse of the banking system.
European stocks up
European shares closed 2.2% higher on Tuesday, after a five-day losing run.
The FTSEurofirst 300 index of leading European shares ended 2.2% higher at 834.36 points, having risen to a day's high of 851.17. The index is down by about 45% in value to date this year.
Volkswagen surged more than 80%, adding to a 146% rise on Monday, following news at the weekend that Porsche had bought more shares n the company. Porsche was up 9.9%.
However, banks took a fresh beating. Shares in French bank Societe Generale were down for a second day in a row, by more than 12%.
BNP Paribas was 10.4%, Credit Agricole down 13.4% and Deutsche Bank fell 13.3%.
Standard Chartered rose 2.9%, after saying it made good progress in the third quarter of 2008 despite slower economic growth in the Asian region. The bank generates two-thirds of its revenues in Asia.
Across Europe: Germany's DAX was up 11.3%, boosted by Volkswagen, and France's CAC-40 was up 1.6%.
In Britain, the FTSE 100 was up 1.9%, 73.79 points higher at 3,926.38.
Other markets
The NZX 50 fell sharply on Tuesday, dipping 91 points, or 3.3%, to close at 2687 on turnover of $65 million.
The Australian sharemarket clawed back substantial early losses before closing slightly weaker.
The S&P/ASX200 closed down 14.6 points, or 0.38%, to 3794.6. The All Ordinaries was down 12.9 points, or 0.34%, to 3755.4.
On the Sydney Futures Exchange, the December share price index futures contract was nine points higher to 3,800 on 2,453 contracts.
However, stocks in Hong Kong, Japan and South Korea rallied. The Nikkei index finished 6.4% higher after previously dropping on Monday to its lowest since 1982.