Wall Street jumps on risk appetite after Fed stimulus

NEW YORK (Reuters) - U.S. stocks rose sharply on Thursday as more monetary stimulus from the U.S. Federal Reserve aimed at helping the ailing economy fueled investor risk appetite.

The Fed's plan to buy $600 billion in Treasuries, announced on Wednesday, boosted risky assets including equities and commodities while sending the U.S. dollar <.DXY> down more than 1 percent against a basket of major currencies.

The CBOE Volatility Index VIX <.VIX>, Wall Street's so-called fear gauge, fell nearly 6 percent. VIX options activity on Wednesday indicated smooth sailing for stocks as traders scooped up bearish puts on the index. The gauge usually moves inversely with the S&P 500, tracking option prices investors are willing to pay as a protection on the underlying stocks.

Investors were not derailed by the latest economic data showing U.S. claims for unemployment benefits rose more than expected last week, underlining persistent weakness in the labor market.

"On the one hand, this (Fed's stimulus) was smaller than many investors were initially hoping for. On the other, as expectations for the size of the program came down over the past few weeks, the dollar stabilized," UBS analysts said in a note.

"In our view, this was a significant positive as additional QE (quantitative easing) could have led to a regime of competitive currency devaluation (beggar thy neighbor policy). This would run the risk of being a destabilizing force, damaging global growth. As such, we are pleased with a slightly smaller program."

The Dow Jones industrial average <.DJI> was up 166.24 points, or 1.48 percent, at 11,381.37. The Standard & Poor's 500 Index <.SPX> was up 15.30 points, or 1.28 percent, at 1,213.26. The Nasdaq Composite Index <.IXIC> was up 29.94 points, or 1.18 percent, at 2,570.21.

MSCI's all-country world stocks index <.MIWD00000PUS> rose 2 percent to two-year highs and reached levels just before the collapse of Lehman Brothers.

Energy and material stock were the top gainers, with the S&P energy index <.GSPE> and materials index <.GSPM> both up 2.2 percent.

Financial stocks also rose as the two-year yield dipped to a record low. The S&P financial index <.GSPF> was up 1.4 percent.

U.S. retailers from discounter Target Corp to teen apparel chain Zumiez Inc reported October same-store sales above expectations, helped by unique merchandise and cheap prices. Target rose 4 percent to $56.12, while the S&P retail index <.RLX> gained 1.7 percent.

U.S.-listed shares of BHP were up 6 percent at $78.46 after the Canadian government blocked its bid for Potash Corp of Saskatchewan Inc . New York-traded shares of Potash fell 3.7 percent to $140.21.

U.S.-listed shares of Unilever Plc jumped 6.2 percent to $31.17 after it matched forecasts with a rise in third-quarter sales.

(Reporting by Angela Moon; Editing by Jeffrey Benkoe)

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