US stocks rallied, giving benchmark indexes their biggest gains in 2012, on speculation global policy makers will take steps to stimulate economic growth.

Bank of America Corp. surged 7.6 per cent to pace gains among financial shares. Caterpillar Inc. and Exxon Mobil Corp. increased at least 3.3 per cent. Home Depot Inc., the largest US home-improvement retailer, climbed 3.4 per cent after raising its stock repurchase plan by $US500 million for fiscal 2012. Facebook Inc. added 3.6 per cent, following a 32 per cent decline since the biggest social-networking company went public.

The Standard & Poor's 500 Index advanced 2.3 per cent to 1,315.13 at 4 p.m. New York time. The Dow Jones Industrial Average increased 286.84 points, or 2.4 per cent, to 12,414.79. About 7.3 billion shares changed hands on US exchanges today, or 8.3 per cent above the three-month average.

"People are viewing central banks as very aware of the weakness of the global economy and looking for ways to deal with that," said Michael Holland, chairman of New York-based Holland & Co. His firm oversees more than $US4 billion. "In addition to that, we've had a major selloff, valuations are low and that certainly helps to lift the market on a day like today."

The S&P 500 rose 2.9 per cent in three days, wiping out the loss driven by a disappointing jobs report on June 1. Earlier this week, the index traded at 12.9 times its companies' reported earnings, according to data compiled by Bloomberg. That was the cheapest valuation in six months, the data showed. Concern about Europe's debt crisis and a global slowdown took the S&P 500 down as much as 9.9 per cent from this year's peak.

Stimulus Bets

Equities rallied today as European Central Bank President Mario Draghi said officials stand ready to act as the euro region's outlook worsens. Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the US central bank's balance sheet, is an "option on the table."

The US economy maintained a moderate pace of growth, according to the Fed's Beige Book survey of business conditions. The policy-setting Federal Open Market Committee meets June 19-20 to consider whether more stimulus is needed.

"I would be surprised if the Federal Reserve isn't already having a contingency plan if everything unravels in Europe," said Ron Florance, managing director of investment strategy for Wells Fargo Private Bank. His firm manages $US169 billion.

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said he expects the US economy to avoid another recession as long as Europe can contain its debt crisis. There won't be a recession "unless events in Europe develop in some way that spills over here big-time," Buffett said yesterday at the Economic Club of Washington, D.C.

Biggest Gains

All 10 groups in the S&P 500 rose today as energy, financial and industrial shares had the biggest gains. The Dow Jones Transportation Average climbed 3 per cent. Bank of America increased 7.6 per cent, the most in the Dow, to $US7.64. Caterpillar, the largest maker of construction equipment, added 3.6 per cent to $US86.66. Exxon Mobil jumped 3.3 per cent to $US80.18.

Home Depot rose 3.4 per cent to $US50.60. The timing of its share repurchases will not have a material impact on the diluted earnings per share in that period, the retailer said.

Monsanto Co. added 3 per cent to $US79.20. The largest seed company will repurchase as much as $US1 billion of shares as rising profit boosts the company's cash hoard to a record.

Facebook rallied 3.6 per cent to $US26.81. No large US company is attracting more attention from short sellers than Facebook amid bets it will keep falling after losing $US29 billion since its initial public offering.

Short Interest

Short interest on the Menlo Park, California-based company reached 5.9 per cent of shares outstanding, according to data compiled by Bloomberg and Data Explorers Ltd., a New York-based research firm. None of the S&P 500 companies with at least $US50 billion in market capitalization has short interest higher than 3 per cent, the data show. Facebook, which has a market value of about $US61.6 billion, isn't in the S&P 500.

"Facebook is one of those companies whose future potential is unknown and unknowable," said Robert Stimpson, a money manager at Akron, Ohio-based Oak Associates Ltd., which oversees about $US900 million and doesn't own Facebook. "The stock is expensive. The short interest might also reflect a bet that there is more bad news to come and Facebook will be punished."

Nasdaq OMX Group Inc.'s board approved a plan to pay brokers whose orders were mishandled in Facebook Inc.'s initial public offering, earmarking about $US40 million to cover losses.

Chesapeake Energy Corp. jumped 7.1 per cent, the most since Aug. 11, to $US18.21. The company is in advanced talks to sell pipelines to Global Infrastructure Partners for more than $US4 billion, said two people with knowledge of the matter.

Unexpected Profit

A measure of homebuilders in S&P indexes gained 3.7 per cent. Hovnanian Enterprises Inc. surged 18 per cent, the most since Aug. 15, to $US2.01. The largest homebuilder in New Jersey reported an unexpected profit for its fiscal second quarter as orders jumped 52 per cent amid rising US demand for new houses.

Iron Mountain Inc. surged 14 per cent, the biggest gain in the S&P 500, to $US32.32. The document-storage company approved a plan to convert to a real-estate investment trust and increased its quarterly dividend by 8 per cent.

Lee Enterprises Inc. soared 16 per cent, the biggest gain since Jan. 24, to $US1.33. Buffett's Berkshire Hathaway disclosed owning a stake in the owner of newspapers in the US Midwest and West Coast. Inc. gained 11 per cent to $US25.06. The family- history research website is weighing a sale and working with Frank Quattrone's Qatalyst Partners LLC to find buyers, according to a person with knowledge of the situation.

Material Costs

Halliburton Co. slumped 3.5 per cent to $US28.10. The world's largest provider of hydraulic-fracturing services said North American margins will be 500 to 550 basis points lower this quarter than last because of higher material costs.

Tempur-Pedic International Inc. plunged 49 per cent, the most ever, to $US22.39. The luxury mattress maker cut its full- year profit and revenue forecasts amid lower-than-expected second-quarter sales in North America.

The selloff that erased $US1.78 trillion from US equity values has pushed the cost of options to the highest levels of 2012, prompting hedge funds to add to short sales at the fastest rate since October. The Chicago Board Options Exchange Volatility Index surpassed 26 last week, a level not seen since December.

The gain left the gauge near its price just before the S&P 500 slumped 12 per cent in August and September 2011, data compiled by Bloomberg show. As the VIX has risen, an International Strategy & Investment Group measure of hedge fund bullishness has retreated by 7.4 per cent.

Short Selling

While the cost of hedges and the amount of short selling are increasing, they may have further to go before bearishness is exhausted amid Europe's credit crisis, according to Wayne Lin of Legg Mason Inc. The VIX would have to gain 45 per cent to reach its average price in August and September. The ISI gauge bottomed at 42 last year compared with its level of 45.3 now.

"The concerns about Europe combined with questions about the robustness of global growth are filtering into markets," Lin, who helps oversee $US639 billion as a money manager at Baltimore-based Legg Mason, said yesterday in a phone interview. "These risks make people back out of equities, cause the hedge funds to go short and push the VIX up."