NEW YORK -- The Dow Jones industrial average surged more than 190 points to a new high yesterday, a strong sign that Wall Street thinks the worst of the global credit crunch has passed.
The rally on the first day of the fourth quarter was propelled in part by news from financial giant Citigroup Inc., which said its third-quarter earnings would fall 60 percent because of a $5.9 billion write-off related to soured mortgage-backed bonds and private equity loans.
Despite the huge write-off, investors greeted the news as a sign that the upheaval in global credit markets was abating and that financial companies' earnings would begin to recover, some analysts said.
Banking giants UBS and Credit Suisse Group warned that third-quarter earnings would be hammered by charges related to credit troubles.
The write-offs probably will amount to worst-case scenarios to account for problems already incurred and any that may be on the horizon, said Art Hogan, chief market strategist at brokerage Jefferies & Co.
What's more, "There's an overriding feeling that we will keep the problems in the credit markets and the residential real estate sector from spilling over to the broader economy," Hogan said. "That has [investors] getting excited about stocks again."
The market was optimistic that new economic data might nudge the Federal Reserve toward another interest rate cut at its Oct. 30-31 meeting.
The Institute for Supply Management, a trade group based in Tempe, Ariz., said that its manufacturing index registered 52.0 in September, down from 52.9 in August. It was the lowest reading since the gauge was at 50.9 last March.
Analysts had expected a reading of at least 52.5. A reading of 50 or more indicates expansion, while below 50 indicates contraction.
The market also may have gotten a lift from seasonal factors: The fourth quarter historically has been the stock market's strongest quarter of the year, in part reflecting optimism about the new year to come, said Sam Stovall, investment strategist at Standard & Poor's in New York.
The Dow rose 191.92 points to 14,087.55, eclipsing the previous high of 14,000.41 set July 19. The technology-heavy Nasdaq composite soared 39.49 points to 2,740.99, its best level in more than six years.
Other market indexes also were up sharply but still below their summer highs. The Standard & Poor's 500 gained 20.29 points to close at 1,547.04, shy of its record close of 1,553.08 set July 19.
The Russell 2000 index of smaller companies was up 19.31 at 824.76. The Sun-Bloomberg index of the top stocks in Maryland climbed 5.34 to 358.33. Costar Group Inc. rose $3.08 to $56.53, while Federal Realty Investment Trust rose $2.30 to $90.90
Advancing issues led decliners by 3-to-1 on the New York Stock Exchange, on volume of 1.42 billion shares.
Stocks dived worldwide from mid-July to mid-August, recording their biggest decline in more than four years amid fear of a financial-market calamity rooted in rising U.S. mortgage defaults. Banks suddenly pulled back from extending credit even to some high-quality borrowers, and to each other, causing the banking system to seize up.
The Federal Reserve and other central banks aggressively began to pump money into the financial system Aug. 17 to encourage banks to lend. The Fed followed that with a half-point cut in its key interest rate on Sept. 18, from 5.25 percent to 4.75 percent.
Lower interest rates often are bullish for stocks, at least initially. The Fed's cut has trumped other concerns that might have weighed on the stock market, including record oil prices.
Former Fed Chairman Alan Greenspan, speaking yesterday in London about the summer turmoil in the markets, said that although "we're not through this yet," the financial system is "creeping closer to normality."
But some market pros say the Fed may just have bought investors a little more time before they're forced to confront more fallout in the economy from the credit crunch and housing's woes.
"I think you just kind of pushed off the critical decision point," said Kevin Caron, market strategist at Ryan, Beck & Co. in Florham Park, N.J.
In overseas trading, Japan's Nikkei stock average closed up 0.36 percent; Britain's FTSE 100 rose 0.61 percent; Germany's DAX index rose 0.77 percent; and France's CAC-40 added 1.01 percent.
Walter Hamilton and Tom Petruno write for the Los Angeles Times. The Associated Press and Bloomberg News contributed to this article.