the so-called "fear index"--as measured by the CBOE Volatility Index fell 12% to 26.58.
A larger-than-expected upward revision to U.S. gross domestic product data, showing that U.S. economy grew at a faster 3.7% in the second quarter (http://www.marketwatch.com/story/us-economy-looks-much-stronger-after-upward-revision-to-gdp-report-2015-08-27), helped lift the spirits of investors that have been unsettled by a spate of volatility. Weekly data on jobless claims (http://www.marketwatch.com/story/us-jobless-claims-fall-6000-to-271000-2015-08-27-8913022), which pointed to continued strength in the labor market, added to the optimism.
"Today's revision means the U.S. economy is growing faster and [the] consumer spending portion points to a stronger growth in the second half of the year. With this kind of growth, we expect $135 earnings per share by the end of 2016," said Phil Orlando, chief equity strategist and senior portfolio manager at Federated Investors.
That translates to a 35% rise in the S&P 500 from its current level by the end of 2016, according to Orlando.
Global equity markets rallied following a 5.3% surge in the Shanghai Composite overnight, snapping a losing streak that wiped out nearly a quarter of its value in a week. That jump cheered investors world-wide, as fears about China have been blamed for much of the recent intense selling around the globe.
See: U.S. investors shouldn't fear China's slowdown (http://www.marketwatch.com/story/us-investors-shouldnt-fear-chinas-slowdown-2015-08-27).
Even so, some China watchers are questioning what drove the move and suggest the Chinese government intervened again. Read more: China's mystery rally (http://www.marketwatch.com/story/beijing-loch-ness-monster-eyed-in-mystery-of-china-rally-2015-08-27)
Investors had fled from stocks largely due to a lack of confidence in the Chinese government's handling of its financial markets, and the perception that the government was spending all its political capital on propping up the stock market rather than investing in its domestic economy, said John Canally, chief economic strategist for LPL Financial.
"They're clumsy and not used to reacting to markets," Canally said. "They're new to this."
The rally in U.S. stocks implies that investors are treating the recent actions out of China much like they did the 1998 Asian markets crisis, when U.S. stocks sold off initially, then bounced back, Canally said.
On Wednesday, the S&P 500 jumped 3.9% as the Dow surged 619 points (http://www.marketwatch.com/story/us-stocks-on-track-to-rise-as-china-tries-fresh-stimulus-2015-08-26). The benchmark S&P stands 8.9% off its May record close, after finishing down 12.4% from that level on Tuesday.
Other markets:Asian markets rebounded (http://www.marketwatch.com/story/asian-markets-rebound-boosted-by-central-banks-us-data-2015-08-27), while European stocks also traded higher (http://www.marketwatch.com/story/european-stocks-bounce-up-tracking-rallies-in-asia-us-2015-08-27).
Crude oil (http://www.marketwatch.com/story/oil-rebounds-by-over-2-as-stocks-recover-2015-08-27) settled 10% higher, while gold (http://www.marketwatch.com/story/gold-tilts-lower-eyes-4-day-losing-streak-2015-08-27) settled slightly lower. The dollar (http://www.marketwatch.com/story/dollar-steady-against-yen-as-risk-sentiment-improves-2015-08-27-11033527) strengthened by 0.7%.
.--Victor Reklaitis in London contributed to this article.
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(END) Dow Jones Newswires
August 27, 2015 16:24 ET (20:24 GMT)
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