US stocks rebounded strongly on Tuesday, with the Dow jumping nearly four per cent after plummeting Monday on the shock of Standard & Poor’s downgrade of the US credit rating.

The Dow Jones Industrial Average of 30 blue-chip stocks closed up 429.92 points, or 3.98 per cent, to 11,239.77.

The broader S&P 500 climbed 53.07 points (4.74 per cent) to 1,172.53, while the tech-heavy Nasdaq jumped 124.83 points (5.29 per cent) at 2,482.52.

The rebound came after the markets had their worst day Monday since the 2008 financial collapse: the Dow lost 5.6 per cent, the S&P 500 6.7 per cent, and the Nasdaq 6.9 per cent.

The surge came in the last hour, with the Dow 150 points in negative territory 45 minutes before the close.

It followed an announcement by the Federal Reserve that it expected to maintain interest rates at ultra-low levels for the next two years due to economic weakness.

In the immediate aftermath of that announcement, the markets sagged on the news that no new direct stimulus was in the works.

“Just as stocks threatened to break down again, the S&P 500 was able to attract support in the 1100 zone. It then climbed aggressively into the close,” said analysts at Briefing.com.

All of the Dow’s blue chips jumped, with Bank of America rocketing 16.74 per cent to recover much of its 20.3 per cent Monday plunge.

In addition to the overall market sell-off Monday, the bank’s drop was spurred by AIG’s $US10.5 billion ($A10.34 billion) lawsuit over losses incurred on mortgage-backed securities sold by a Bank of America unit.

Insurer The Travelers Company added 6.4 per cent, and Alcoa 8.0 per cent.

On the Nasdaq, eBay jumped 11.6 per cent, Yahoo 8.75 per cent, and Apple 5.6 per cent.

Already at two-year lows, US bond yields plunged after the Fed’s announcement.

The 10-year Treasury bond dropped to 2.18 per cent from 2.34 per cent late Monday, while that on the 30-year Treasury fell to 3.57 per cent from 3.66 per cent.

AFP