U.S. stocks surge as financial shares revive

NEW YORK (Reuters) - U.S. stocks surged on Wednesday, rebounding from steep losses, as investors snapped up beaten-down financial shares amid talk of help for mortgage insurers and some optimism returned to the market a day after the Federal Reserve's emergency interest-rate cut.

The S&P 500 financial index had its best day in 5-1/4 years as investors reversed bets of the last few days and decided recent declines went too far on the back of the Federal Reserve's surprise 75 basis point rate cut on Tuesday.

The rally caused safe-haven government bonds and the yen, which tend to rise as investors pare risky trades, lose ground, though commodities, including oil, sagged on nagging fears that slower global growth will hurt demand.

"The speculation that mortgage insurers could potentially get a bailout helped the market stabilize. That was enough to get the market going. There was no real silver bullet news that came through," said Joe Saluzzi, co-manager of trading at Themis Trading in New Jersey.

Shares of top bond insurers MBIA and Ambac Financial soared on speculation of capital infusions, with MBIA up more than 30 percent and Ambac up around 70 percent.

Other financial shares posting strong gains included investment banks JPMorgan Chase &Co and Bear Stearns Cos, jumping more than 10 percent each.

The Dow Jones industrial average was up 299.31 points, or 2.50 percent, at 12,270.50. The Standard & Poor's 500 Index was up 28.08 points, or 2.14 percent, at 1,338.58.

The Nasdaq Composite Index was up 24.14 points, or 1.05 percent, at 2,316.41, although losses in iPod maker Apple Inc dragged on the index.

Earlier, stocks were hammered by persistent worries about a U.S. recession.