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Stocks Stage Biggest Two-Day Rally Since 2002

U.S. stocks staged the biggest two-day rally in five years, led by financial shares, after Federal Reserve Vice Chairman Donald Kohn buttressed expectations for another interest rate cut.

Citigroup Inc., Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. rose more than 5 percent as banks and brokerages in the Standard & Poor’s 500 Index gained the most since 2002. EBay Inc. and Inc. helped push the Nasdaq Composite Index to a 3.2 percent gain after Sanford C. Bernstein & Co. forecast a “strong” fourth quarter for both.

“Kohn’s comments just add to a perception that the Fed is embarking on a sustained path of easing,” said Michael Metz, the New York-based chief investment strategist at Oppenheimer Holdings Inc., which manages $60 billion. “There’s also huge relief that the worst of the financial crisis may be behind us.”

The Standard & Poor’s 500 Index added 40.79, or 2.9 percent, to 1,469.02, bringing its two-day gain to 4.4 percent, the most since October 2002. The Dow Jones Industrial Average increased 331.01, or 2.6 percent, to 13,289.45. The Nasdaq Composite gained 82.11 to 2,662.91. More than 13 stocks rose for every one that fell on the New York Stock Exchange.

European shares also climbed, with the Dow Jones Stoxx 600 gaining 2.8 percent to 364.09, the most since 2003. U.S. Treasury and European government bonds fell as the stock-market gains reduced the appeal of fixed-rate investments. [MORE]

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