U.S. stocks rally to 5-month highs on recovery hopes

NEW YORK (MarketWatch) — U.S. stocks rose Tuesday as the dollar fell after the Bank of Japan unexpectedly announced it was pumping more funds into its struggling economy to spur growth.

The Dow Jones Industrial Average(DJIA 10,846, +94.38, +0.88%) rose 94 points, or 0.9%, to 10844 on Tuesday, erasing Monday’s 78-point drop. Caterpillar (CAT 78.76, +1.49, +1.93%) powered the Dow’s gains, rising 2.1%, while United Technologies(UTX 71.49, +0.96, +1.35%) increased 1.8% and J.P. Morgan Chase(JPM 39.25, +0.30, +0.77%) rose 1.5%.

The Nasdaq Composite(COMP 2,376, +31.12, +1.33%) rose 1.2% to 2372. The Standard & Poor’s 500-share index (SPX 1,150, +13.29, +1.17%) rose 1.1% to 1149. All ten of its sectors traded in positive territory, led by the materials and financial sectors.

The Bank of Japan surprisingly announced a $418 billion monetary easing program while cutting interest rates to virtually zero. The BOJ acted under pressure from the government to do more to promote growth and take the steam out of the high yen, which has stymied the critical export sector.

Among the specifics, the central bank said it would cut its key overnight call rate to a range of 0.0%-0.1%, with rates to remain at this virtual zero level until prices begin to stabilize from deflationary pressures.

Meanwhile, the Bank of Australia held steady on interest rates even as most economists expected it to boost rates. Moody’s Investors Service also said it may cut Ireland’s debt rating again, citing the increased cost to the government of repairing the stricken banking system, weak economic growth and rising borrowing costs.

The dollar sank against the yen after getting only a brief BOJ-related boost. Gold pushed higher to an intraday record of $1,329.60 an ounce.

The dollar dropped against the euro. The euro was trading recently at $1.3795, up from $1.3690 late Monday in New York. The U.S. Dollar Index (DXY 78.01, -0.43, -0.55%) , which tracks the currency against a basket of six others, fell 0.6%.

Demand for Treasurys increased, sending the yield on the 10-year note(UST10Y 2.47, -0.01, -0.57%) down to 2.46%. The 2-year yield slipped to another record low. Crude-oil prices climbed to just above $82 a barrel.

Investors also remain focused on some key data later this week. Dow-component Alcoa(AA 12.08, +0.16, +1.34%) unofficially kicks off earnings season after the close on Thursday, just ahead of the monthly jobs report on Friday.

Among stocks in focus, Mosaic’s (MOS 61.00, +2.21, +3.76%) fiscal first-quarter earnings nearly tripled, coming off a very steep drop in profit in the year-earlier period, as the fertilizer maker’s revenue and margins both jumped. Shares rose 2.1%.

Women’s apparel retailer Talbots (TLB 11.10, -1.44, -11.48%) cut revenue guidance for the quarter and year as President and Chief Executive Trudy Sullivan said traffic in the fiscal third quarter “has been inconsistent.” Shares slid 10%.

Still to come, ISM non-manufacturing data is scheduled for release at 10 a.m. EDT.