However, the news contrasted with a poor morning for European stocks, where the UK's FTSE index fell 130 points and the German Dax index fell 330 points.
The European slumps followed comments by the European Central Bank that it would not be pressured into an early rate cut.
Sub-prime effect
Analysts said Wednesday's US stock rally was due in part to news of a meeting between New York regulators, bond insurers and their customers over a possible bail-out following the sub-prime mortgage crisis.
This led to rises in shares belonging to large insurers such as Ambac Financial Group and MBIA, who backed some of the riskier bets banks and their customers have made in credit markets over the crisis.
"The speculation that mortgage insurers could potentially get a bail-out helped the market stabilise [and] that was enough to get the market going.
"[However] there was no real silver bullet news that came through," Joe Saluzzi, co-manager of trading at Themis Trading, told the Reuters news agency.
The sub-prime crisis stems from US mortgage companies making hundreds of billions of dollars of risky loans to individuals with poor credit histories who then found themselves unable to repay the debts.
Questions remain
Despite the US rally, some analysts remain concerned that the markets could still weaken over fears of a looming US recession and fear the Federal Reserve's rate cut - the largest in the US in 23 years - smacked of panic.
"There will be some second-guessing about yesterday's rally off the lows as investors re-evaluate whether the Fed's emergency action means things are much worse for the economy than they now think," Al Goldman at AG Edwards told the AFP news agency.
Others are questioning whether the much-vaunted $145bn US economic stimulus package of tax relief and incentives would be enough to shore up the US economy, which has been battered by the slumping housing market, tight credit conditions and signs of growing unemployment and falls in consumer spending.
In Europe, meanwhile, Jean-Claude Trichet, the European Central Bank president, said it was the responsibility of the bank to "solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets", which was widely interpreted as a signal that interest rates would not change.
Other stock markets in the Americas also showed volatility on Wednesday, with Brazil's Bovespa falling 3.32 per cent, Mexico's Bolsa index rising 2.71 per cent and Canada's S&P/TSX index gaining slightly by 0.13 per cent.
Earlier in the day Asian markets had risen, with a 2 per cent rebound for Japan's benchmark Nikkei and a 10.72 per cent rise in Hong Kong's Hang Seng Index.