By Ellis Mnyandu
NEW YORK (Reuters) - Stocks rose on Thursday as investors bet that a spate of interest rate cuts by central banks around the world, including the Federal Reserve, will help lessen the impact of global recession.
While the cuts should drive down the costs of borrowing, investors were also encouraged by signs that efforts to unlock jammed credit markets continued to free up cash needed to avert a sharp downturn. Buyers waded back into the market in search of beaten-down shares, particularly in energy, financials and technology sectors.
Companies posting stronger-than-expected earnings included Colgate-Palmolive Co , up more than 7 percent, and Exxon Mobil, whose third quarter profit jumped to a record $14.83 billion.
Among interest-rate sensitive stocks, including banks, Citigroup shares jumped more than 3 percent. Home builders were another bright spot, with the Dow Jones home construction index up 5.5 percent.
"If my theory is correct, the markets have discounted a much worse recession," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto. "Yesterday's rate cut was much for psychology."
The Dow Jones industrial average climbed 209.08 points, or 2.33 percent, to 9,200.04. The Standard & Poor's 500 Index gained 27.04 points, or 2.91 percent, to 957.13. The Nasdaq Composite Index rose 43.64 points, or 2.63 percent, to 1,700.85.
Thursday's government data helped underscore why the Fed deemed it necessary to cut rates on Wednesday.
Data showed that gross domestic product, which measures the output of all goods and services within U.S. borders, experienced its sharpest contraction in seven years in the third quarter, but the slippage was slightly less than expected.
The Fed cut its benchmark fed funds rate by half a percentage point to 1 percent on Wednesday, action that was soon followed by cuts in Taiwan and Hong Kong.
Japan is expected to cut rates on Friday, while the European Central Bank, Australia and the Bank of England are expected cut rates next week. China also cut on Wednesday.
Shares of Colgate-Palmolive Co rose to $64.46 on the New York Stock Exchange, where Citigroup shares rose to $13.15. Among home builders, luxury home builder Toll Brothers climbed nearly 5 percent to $21.13.
On Nasdaq, shares of Apple Inc, maker of the iPhone and iPod, rose 4.4 percent to $109.22. Technology shares are among sectors that analysts see poised to be the biggest beneficiaries in an economic revival.
Shares of Exxon Mobil, however, succumbed to profit-taking following quarterly results to trade off 0.8 percent at $74.10. Shares of rival Chevron were up 1.4 percent at $72.97 ahead of the company's results on Friday.
The costs for banks to borrow dollars from each other over three months fell for a 15th straight day on Thursday, suggesting efforts to restore confidence in the credit markets are beginning to bear fruit.
(Additional reporting by Ryan Vlastelica; Editing by Kenneth Barry)
