Wall Street gains two percent on talk of Spain solution

NEW YORK (Reuters) - Stocks jumped on Wednesday, giving the S&P 500 its best day since December, as talk of a rescue of Spain's troubled banks and hopes for more monetary stimulus sparked a rebound from recent selling.

After a 6 percent fall by the S&P 500 in May that took the index below its key 200-day moving average on Friday, the market was ripe for a rebound, analysts said. Buying was strong across the broad market, with all 10 S&P 500 sectors gaining ground.

"The market was at least getting close to the point of seller exhaustion. Once that happens, the pressure to cover short positions increases," said Chris Burba, a short-term market technician at Standard & Poor's in New York.

The S&P 500 also held above the psychologically important 1,300 level, while the Dow inched back into positive territory for the year.

"Capitulation occurred as the S&P hit its 200-day average, and now an oversold bounce is under way," said Burba, who noted that volume levels also increased on Friday

The energy, financial and technology sectors, all of which are tied to strong global demand, led gainers Wednesday. Among the big banks, shares of Bank of America shot up 7.6 percent to $7.64 and shares of Morgan Stanley climbed 8.4 percent to $13.94, both extending gains just ahead of the close.

European sources said German and European Union officials were seeking solutions for Spain's weakened banks, the latest worry in the fiscally troubled euro zone. Madrid has not yet requested assistance and is resisting political conditions.

European Central Bank President Mario Draghi suggested earlier Wednesday that further stimulus to tackle the euro zone's debt crisis would not necessarily be forthcoming, but speculation persisted that the ECB could act if financial market tensions intensify further.

The ECB left interest rates unchanged following its meeting Wednesday.

In the United States, Atlanta Federal Reserve Bank President Dennis Lockhart said the central bank may need to consider further monetary easing if a wobbly U.S. economy falters or Europe's crisis creates more of a financial shock.

Investors will be keen to hear from Fed Chairman Ben Bernanke, who is due to testify on the economy before a congressional committee on Thursday.

The Dow Jones industrial average <.DJI> was up 286.84 points, or 2.37 percent, at 12,414.79. The Standard & Poor's 500 Index <.SPX> was up 29.63 points, or 2.30 percent, at 1,315.13. The Nasdaq Composite Index <.IXIC> was up 66.61 points, or 2.40 percent, at 2,844.72.

Both the Dow and S&P 500 had their biggest daily percentage increases since December 20.

The S&P 500 is now up 4.6 percent for the year so far, but remains well off its highs of the year.

In U.S. economic news, U.S. non-farm productivity fell more than expected in the first quarter as companies gave more hours to employees but only modestly expanded output.

Adding to the day's slightly more upbeat news on U.S. economy, the Federal Reserve said in its Beige Book summary that U.S. economic growth picked up over the two prior months and hiring showed signs of a modest increase.

Facebook Inc is making it easier for advertisers to reach the growing ranks of users on smartphones and mobile devices, taking a significant step toward addressing one of investors' most pressing concerns and broadening its appeal to marketers. The stock rose 3.6 percent to $26.81.

On the down side, shares of Tempur-Pedic International Inc. fell 48.7 percent to $22.39 after revising its full year forecast.

(Editing by Kenneth Barry)

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