US stocks rallied, extending yesterday’s 6.4 per cent surge in the Standard & Poor’s 500 Index, as speculation grew the worst of the banking crisis may be over. Shares in Europe and Asia also advanced.

Citigroup Inc. and Bank of America Corp. jumped more than 9.2 per cent after Treasury Secretary Timothy Geithner said the government will use capital injections to spur lenders to sell distressed securities. Morgan Stanley increased 6.9 percent after Goldman Sachs Group Inc. recommended buying the shares. Hewlett-Packard Co. climbed 2.5 percent as UBS AG analysts touted the world’s largest personal-computer maker.

“We’re gradually dialing up market exposure,” said Alan Gayle, a Richmond, Virginia-based senior investment strategist at RidgeWorth Capital Management, which oversees $60 billion. “The regulators seems to be making progress in dealing with the financial sector.”

The S&P 500 surged the most since November yesterday after Citigroup said it’s having the best quarter since 2007, spurring speculation the worst of the banking crisis is over. Almost $1.2 trillion in losses and writedowns at financial firms worldwide have driven the benchmark index for U.S. equities down 20 percent this year.

Stocks also rose after the US Congress gave final approval to a $410 billion bill that will boost domestic spending, loosen the trade embargo on Cuba and fund thousands of congressional pet projects known as earmarks.

The rebound in the S&P 500 from 665 is a bullish sign to traders who base predictions on so-called Fibonacci patterns in price charts. The index has risen 7.9 per cent since sinking to 666.79 on March 6. The low was within 0.3 percent of 665, a level at which the benchmark index would give up 61.8 per cent of the 25-year rally beginning in 1982.

“It may be a bear market bounce but it can be very significant, I would say 25 to 30 percent from here,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $8 billion in New York. “If it’s a temporary rebound or not, nobody can tell. It lies on the economy really. But I think this is going to be a significant recovery from here at least initially.”

Citigroup, once the world’s largest bank, climbed 14 per cent to $1.65, following a 38 per cent advance yesterday. Bank of America added 9.2 per cent to $5.23. JPMorgan Chase & Co., the biggest US bank by market value, rose 4.9 per cent to $20.45.

Morgan Stanley jumped 6.9 per cent to $22.28. The fifth-biggest US bank by assets was raised to “conviction buy” at Goldman Sachs, which cited its high capital position and reasonable valuation.

Geithner said in an interview with PBS’s Charlie Rose that private investors will also get federal loans to buy the distressed assets, in a two-pronged strategy intended to revive trading in mortgage-backed debt.

“It requires making sure there’s capital available to the system, that these banks have the incentive to start to move this stuff, that there’s a mechanism available” to finance investors, Geithner said.

Hewlett-Packard climbed 2.5 per cent to $27.72. The stock was raised to “buy” at UBS, which said “investors with a longer-term view can benefit.”

Nucor Corp. added 3.8 per cent to $37.95 after the largest US-based steel producer by market value was upgraded to “buy” at Goldman Sachs, which said “we expect its earnings to outperform peers in this very tough environment.”

Staples Inc. fell 3.7 per cent to $15.16. The largest office-supplies retailer missed analysts’ fourth-quarter profit estimates after businesses bought fewer desks and computers.

American Express Co. declined 4.5 per cent to $11.62. The biggest US credit-card company by purchases was added to Goldman Sachs’s “conviction sell” list on “earnings headwinds.”

Confidence in the world economy waned in March as the recession proved deeper than forecast and the US mounted new rescues of financial institutions, a survey of Bloomberg users on six continents showed. The Bloomberg Professional Global Confidence Index fell to 5.95 from 8.5 in February. A reading below 50 means pessimists outnumber optimists.

Investors in the survey from New York to London grew more convinced stocks will extend their 17-month retreat, with pessimism in the US climbing to the highest since the S&P 500 entered a bear market in July.

Participants predicted losses in the next six months for the S&P 500, Brazil’s Bovespa, Mexico’s Bolsa, the UK’s FTSE 100, Germany’s DAX, the Swiss Market Index and Spain’s IBEX 35. Users in Italy, France and Japan turned less bearish while still predicting declines. The 2,457 responses between March 2 and March 6 followed the worst start for the S&P 500 in its 81-year history.

“Company outlook statements are dire and earnings visibility is extremely low across the market,” said Chirin Gill, a London-based fund manager at Daiwa SB Investments, which has $60 billion. “Earnings revisions may need to come down.”

Earnings for 269 companies in the Stoxx 600 that have reported earnings since Jan. 12 dropped 94 percent, according to Bloomberg data. That compares to a 58 percent contraction in profit for the 469 companies that have reported results in the S&P 500 during the same period.

UBS AG added 1.3 per cent to 9.92 francs in Zurich after earlier falling 3.9 percent. Switzerland’s largest bank posted a 20.9 billion-franc ($18 billion) loss for 2008 after costs to settle a U.S. tax investigation and writedowns on securities.

The bank’s 2008 loss is the biggest in Switzerland’s history. UBS amassed more than $50 billion in writedowns and losses since the beginning of the subprime crisis, forcing it to raise more than $32 billion in capital from investors including the Swiss government, and cut 11,000 jobs.

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