The Fed said it had agreed with the European Central Bank and the central banks of England, Canada and Switzerland to confront what it called elevated pressures in the credit markets. The Fed said it will create a temporary auction facility to make funds available to banks and set up lines of credit with the European and Swiss central banks for additional resources.
"I would view it as a very big positive because they had always just kind of talked to each other but now they're actually working together. It's a much more concerted effort," said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Company.
In the first minutes of trading, the Dow, which plunged 294 points Tuesday, rose 227.77, or 1.70 percent, to 13,660.54.
Broader stock indicators also soared. The Standard & Poor's 500 index gained 29.40, or 1.99 percent, to 1,507.05. The Nasdaq composite index added 52.98, or 2.00 percent, to 2,705.33.
Bond prices fell as investors returned to the stock market. The 10-year Treasury note's yield, which moves opposite the price, rose to 4.15 percent from 3.97 percent late Tuesday.
On Tuesday, stocks plummeted after the Fed lowered the target fed funds rate by a quarter point to 4.25 percent, disappointing investors who hoped for a more aggressive move to boost the economy during the seize-up in credit and rise in home foreclosures. Investors were also unnerved that the central bank did not implement a larger cut in the discount rate - the rate the Fed charges banks - and did not offer a more definite pledge to cut rates further.