U.S. stocks soar in late-day rally, yen plummets

NEW YORK (Reuters) - U.S. stocks surged more than 10 percent on Tuesday, capping a worldwide rally in equity markets, as investors snapped up shares that had plunged during the worst October on record, and the yen posted its biggest decline against the dollar in more than 30 years.

The late-day U.S. surge also pulled up equity markets in Brazil and Mexico by double-digit percentage gains, and extended a plunge in benchmark U.S. government debt prices. The Dow industrials and the S&P 500 had their second-biggest point gains after the record rally two weeks ago.

A Japanese newspaper report saying the Bank of Japan is considering an interest rate cut sparked the dollar-denominated Nikkei 225 futures index to jump 14 percent and hit an upward limit threshold, and helped ignite the U.S. rally.

The yen, which fell against the dollar as the equities rally sparked a tentative recovery in risk appetite, extended losses after the report of a cut in Japanese interest rates, marking the yen's biggest fall against the greenback since 1974.

Expectations that the U.S. Federal Reserve on Wednesday will cut interest rates at the end of its two-day policy meeting and central banks in Europe and Britain will likely follow next week also helped drive the rally in stocks, after they had sunk to 5-1/2-year lows.

"I don't think this is going to end tomorrow. Tomorrow the Fed cuts interest rates. We certainly made 'a' bottom, the question is whether made 'the' bottom, and I can only identify that in hindsight," said Al Goldman, chief market strategist at Wachovia Securities in St. Louis.

Investors put aside any fears they may have of a deep worldwide recession even after U.S. consumer confidence fell to an all-time low in October, driving the Dow up 10.9 percent.

The Dow had fallen almost 25 percent in October as of Monday, and all U.S. equity markets, as measured by the Wilshire 5000 index, have lost about $4 trillion in value during the month.

A recovery in Asian equity markets overnight and a rise in European shares sowed optimism, along with signs of a further thaw in the credit markets. The rates banks charge each other to borrow funds in euros, the dollar and sterling fell.

Oil retreated from session highs and dipped below $63 a barrel as concerns about faltering demand offset comments by members of the Organization of Petroleum Exporting Countries that the producer group could throttle back output further.

When markets are extremely oversold, stocks bounce back, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

"If you believe that governments around the world are going to be successful in reenergizing financial markets and gradually bringing back confidence and stability in the weeks and months ahead, then you probably want to be more of a buyer than a seller," said Sheldon.

The Dow Jones industrial average .DJI jumped 889.35 points, or 10.88 percent, to 9,065.12. The Standard & Poor's 500 Index .SPX surged 91.59 points, or 10.79 percent, to 940.51. The Nasdaq Composite Index .IXIC ran up 143.57 points, or 9.53 percent, at 1,649.47.

European shares snapped a five-day losing streak, riding a huge surge in Volkswagen (VOWG.DE) shares, but banking losses took the edge off the rally's early stellar gains.

Downtrodden sectors such as technology, financials and energy led the U.S. stock advances, a day after a late slide sent equity indexes to their lowest levels in 5-1/2 years.

Big oil companies gave the Dow its biggest boost after British major BP Plc (BP.L) reported a record quarterly profit, beating expectations. Exxon Mobil (XOM.N) and Chevron (CVX.N) both rose more than 13 percent.

Shares of capital-intensive companies such as telecoms posted the day's sharpest gains, including Verizon Communications(VZ.N), up over 14 percent, and AT&T(T.N), up over 13 percent.

The FTSEurofirst 300 index .FTEU3 of leading European shares ended 2.2 percent higher at 833.58 points.

Volkswagen soared 82 percent, adding to a 146 percent gain on Monday, as investors needing to cover bets the stock would slide continued to pile into the automaker after news Porsche (PSHG_p.DE) had bought up much of VW's free float.

VW briefly became the world's biggest company by market value. Porsche rose 9.9 percent.

The benchmark 10-year U.S. Treasury note slid 47/32 in price to yield 3.86 percent, while the 2-year U.S. Treasury note fell 3/32 in price to yield 1.58 percent.

The dollar gained 5.3 percent against the yen at 97.75, while the euro surged 2.05 percent at $1.2722 against the dollar.

The dollar also fell against a basket of major currencies, with the U.S. Dollar Index .DXY off 1.05 percent at 86.279.

U.S. crude settled down 49 cents at $62.73 a barrel, after trading up to $65.20 earlier. London Brent crude settled $1.12 lower at $$60.29 a barrel.

Gold prices ended higher after the sharp equity recovery and dollar pullback triggered fresh buying ahead of the Fed's key interest rate decision on Wednesday.

U.S. gold futures for December delivery settled down $2.40 at $740.50 an ounce in New York.

Overnight in Asia, the Nikkei index .N225 finished 6.4 percent higher after dropping to its lowest level since 1982 on Monday. The MSCI index of Asia-Pacific stocks outside Japan rose for the first time in five days, up 1.8 percent after earlier hitting a four-year low.

(Reporting by Ellis Mnyandu, Gertrude Chavez-Dreyfuss, John Parry and Chris Baldwin in New York and Joe Brock, Rebekah Curtis, Kirsten Donovan and Jan Harvey in London; writing by Herbert Lash; Editing by Leslie Adler)