Countrywide climbed the most since at least 1982. Bank of America Corp. is in talks to acquire the largest U.S. mortgage company, a person with knowledge of the discussions said. JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. led financial firms to the biggest gain in a month as traders increased bets that the Fed will reduce its benchmark lending rate by a half point when it meets Jan. 30.

The Standard & Poor's 500 Index added 11.20, or 0.8 percent, to 1,420.33 after falling earlier by 1 percent. The Dow Jones Industrial Average gained 117.78, or 0.9 percent, to 12,853.09. The Nasdaq Composite Index added 13.97, or 0.6 percent, to 2,488.52. Two stocks rose for every one that fell on the New York Stock Exchange.

The possibility Countrywide will be bought ``suggests a bottom in financial shares,'' said Michelle Clayman, the New York-based chief investment officer at New Amsterdam Partners, which manages $4.5 billion. ``It says there is some value for these companies and at the right prices people will come in and prop them up.''

Countrywide fell 39 percent this week before today, hurt by rising foreclosures and speculation it faces a funding shortage. Almost $100 billion in losses tied to subprime mortgages sent bank shares down 21 percent last year and prompted the Fed to cut its benchmark lending rate three times since September.

Volatile Trading

Stocks swung between gains and losses throughout the day. The Dow average fell 103 points in the first hour of trading in New York before recovering, then slipped more than 50 points at midday after lower oil prices dragged down energy shares. Volume on the NYSE has averaged 1.9 billion the last four days, 31 percent more than during the previous three months.

Countrywide gained $2.63, or 51 percent, to $7.75 in NYSE trading, the biggest rise since Bloomberg began tracking data. Details of a transaction were being discussed by Countrywide and Bank of America, said the person, who declined to be identified because the talks aren't public. Bank of America, which invested $2 billion in Countrywide last August, added 56 cents to $39.30.

Countrywide issued a statement declining to comment and Bank of America spokesman Bob Stickler said he wouldn't respond to an earlier report about the talks in the Wall Street Journal, which cited people familiar with the situation.

Banks Rally

A gauge of financial firms in the S&P 500 rallied 2.3 percent after falling as much as 2 percent earlier today.

JPMorgan, the third-biggest U.S. bank, rose $1.07 to $41.33. Wells Fargo, the country's second-largest mortgage lender, added 87 cents to $27.91. Citigroup, the nation's biggest bank by assets, rose 62 cents to $28.11. Goldman Sachs Group Inc., the biggest securities firm, increased $5.16 to $196.91.

``The market is reacting like it's over, subprime is done, we've written it all off, everything is happy,'' said Joseph Saluzzi, the co-head of equity trading at Themis Trading LLC in Chatham, New Jersey. ``It's an overreaction.''

Bernanke's speech in Washington today was his first on the economy since the central bank cut its target rate for overnight bank lending by 0.25 percentage point to 4.25 percent last month. Odds of a half-percentage point cut at the Fed's meeting this month climbed to 88 percent from 76 percent yesterday, based on Fed funds futures.

`Substantive Action'

``In light of the recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary,'' Bernanke said. ``We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.''

The market also got a boost after sales at Wal-Mart Stores Inc. topped analysts' estimates, Verizon Communications Inc. said slower economic growth hasn't hurt its business and United Parcel Service Inc. increased its stock buyback plan fivefold.

Wal-Mart rose $1.50, or 3.2 percent, to $48.40 for the biggest gain in two months. The world's largest retailer said December sales rose 2.4 percent, the most in four months, after it lured shoppers with price cuts on more holiday items.

Verizon Communications Inc., the second-biggest U.S. phone company, added 98 cents to $43.45. President Denny Strigl said the economic slowdown isn't affecting revenue from companies or home-phone customers, a contrast to comments made by larger rival AT&T Inc. this week. AT&T gained 40 cents to $39.40.

UPS jumped $2.95, or 4.4 percent, to $69.66 for the biggest rise since August. The world's largest package-delivery company plans to buy back $10 billion of shares as it takes on more debt.

Airlines Climb

Airlines gained the most since March 2003 on speculation Northwest Airlines Corp., the fifth-largest U.S. carrier, could be a merger partner for Delta Air Lines Inc.

Delta's board will be asked tomorrow to permit the start of talks with Northwest and UAL Corp., the parent of United Airlines, with the goal of choosing between them, the Wall Street Journal reported, citing people familiar with the matter.

Northwest gained $3.84 to $15.85. UAL surged $6.16 to $32.19. Delta climbed $2.46 to $15.98. The 14-member Amex Airline Index jumped 12 percent, the most since March 21, 2003.

The market's rise today was limited by declines in energy producers after crude oil fell below $94 for the first time in more than two weeks on speculation that global economic growth will slow, cutting energy consumption.

Chevron Corp., the second-biggest U.S. fuel producer, lost 67 cents to $91.90. Schlumberger Ltd., the world's biggest oilfield-services provider, declined $1.52 to $97.09. The S&P 500 Energy Index retreated 0.5 percent, the biggest drop among 10 industries.

Intel Drops

Intel Corp. fell 21 cents to $22.54 in Nasdaq trading. New York is probing whether the world's largest maker of computer microprocessors violated federal and state laws by coercing customers to exclude competitor Advanced Micro Devices Inc. from the worldwide market for computer processing units.

The Russell 2000 Index, a benchmark for companies with a median market value of $537.4 million, rose 1.1 percent to 720.21. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, increased 0.9 percent to 14,245.18. Based on its advance, the value of stocks climbed by $155.5 billion.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .

Last Updated: January 10, 2008 17:45 EST

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