NEW YORK ( TheStreet) -- The major U.S. stock indices soared Wednesday after the world's central banks pledged to work together in an effort to boost the global economy.

The Dow Jones Industrial Average jumped 490 points, or 4.2%, to close at 12,046, its peak for the day. The surge put the blue-chip index back in the black for the year. The S&P 500 rose 51.8 points, or 4.3%, to finish at 1247 and the Nasdaq added 104.8 points, or 4.2%, to settle at 2,620.

The central banks of Canada, England, Japan, Europe, Switzerland and the U.S. announced measures to "ease strains in the financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," said the Federal Reserve in its statement.

The central banks will lower the pricing on all existing temporary U.S. dollar liquidity swap arrangements by 50 basis points, therefore lowering the cost of emergency dollar funding for financial institutions.

Recent dollar liquidity swap arrangements have been created in response to strains in short-term funding markets in Europe. The arrangements are designed to improve liquidity conditions in global money markets and reduce the risk that strains abroad could spread to U.S.

Prior to the Fed's announcement, China's central bank said that it will cut the reserve requirement ratio for lenders by 50 basis points starting Dec. 5. The move, the first since Dec. 2008, is expected to help bolster China's economy and increase liquidity as the markets in developed nations remain unstable.

The rate cut may also signal that China will consider loosening its monetary policy in the future. Markets were becoming optimistic about the possibility the Asian superpower will once again come to the rescue of the global economy.

"While multi-national coordination can only be viewed as a positive, the deep rot in U.S. and European financial institutions that sparked the need for this move -- underscored by yesterday's S&P downgrade of 37 financials -- will not be addressed by simply increasing liquidity," cautioned research firm Waverly Advisors. "As we have been reminded again and again in recent years, decisive action by central bankers can only accomplish short-term fixes without supporting action by their governments that address underlying structural issues. With political will in desperately short supply in the European Union, U.S. and Japan, there seems scant hope for this time to be different."

These promising developments have, for now, helped steer some attention away from the shaky details on how European finance ministers plan to bolster the European rescue fund, following their meeting in Brussels Tuesday. Eurozone officials acknowledge they may require the International Monetary Fund's help to bolster the bailout fund.

Investors are now looking to a European summit on Dec. 9 for more direction on how leaders plan to contain the debt crisis amid soaring borrowing costs in Spain and Italy.

Olli Rehn, economic and monetary affairs commissioner, said Wednesday that Europe faces a "critical" period of 10 days to rescue the eurozone.

"Markets will rally on yet another 'quick fix' and 'illusion of progress,'" says Jeffrey Sica, president and chief investment officer of SICA Wealth Management. "The ability of the U.S. central bank to provide liquidity in cooperation with the European Central Bank will be ineffective due to the ECB being overextended and the limited ability of the Federal Reserve to 'print money' without accelerating our deficit to unsustainable levels ... Banks are severely overleveraged and no amount of stimulus could curtail the crisis without causing significant long term economic problems."

London's FTSE closed 3.16% higher, and Germany's DAX finished up 4.98%. In Asia, Japan's Nikkei Average settled down 0.51%, and Hong Kong's Hang Seng index fell 1.46% at the close.

Solid economic data in the U.S. also helped sentiment. The National Association of Realtors' pending home sales index for October improved 10.4% to a reading of 93.3 from 84.5 in September. Economists had expected to see only a 1.5% improvement, according to Thomson Reuters.

The Chicago Institute for Supply Management reported that its purchasing managers' index rose to 62.6 in November, rebounding to a 7-month high and marking the 26th month of expansion in the Chicago manufacturing sector. Economists polled by Thomson Reuters expected the index to remain unchanged at October's 58.4 level. A reading above 50 indicates expansion in the manufacturing sector.

Private-sector employment increased by 206,000 in November from a revised 130,000 in October, according to the latest national employment report from Automatic Data Processing. Economists surveyed by Thomson Reuters expected private sector jobs would increase by 130,000 in November from an originally reported 110,000 for October.

The Federal Reserve's summary of economic conditions in 12 Federal Reserve districts, know as the beige book, showed only slight signs of improvement. "Overall, economic activity increased at a slow to moderate pace," said the report. There were signs of improvement in consumer spending, manufacturing activity and home refinancing. However, the residential and commercial real estate markets remained "lackluster across most of the nation."

"Our first impression is that the subdued nature of the report is somewhat inconsistent with the pace of the data over the intervening period -- in this case that ended in mid-November -- but perhaps timing didn't allow it to encompass some the improvement," CRT Capital analyst David Ader said.

"Still, there was no drama that we can see in the details and perhaps with a skew to a degree of more optimism in that there were openings for qualified applicants, but not enough of those, and that there were some area of upward push on wages. This is splitting hairs and we'd paint the beige book beige."

Despite a lot of skepticism about Wednesday's spate of positive headlines, "today's solid batch of domestic economic data in the U.S. reminded the market that we are in a very different economic backdrop today than we were in 2008," said John Canally, economist with LPL Financial.

In corporate news, Standard & Poor's cut its ratings of Goldman Sachs ( GS), Bank of America's ( BAC) Merrill Lynch unit and Citigroup's ( C) long-term debt to A- from A, and put their ratings on a "negative" watch.

S&P's new ratings were part of a sweeping change to its rating methodology for 37 financial institutions published earlier this month. Wells Fargo ( WFC) was downgraded to A+ from AA-, and JPMorgan Chase ( JPM) was cut to A from A+.

Pfizer's ( PFE) best-selling product, cholesterol drug Lipitor, is being offered in generic form starting Wednesday. The drug manufacturer is making a push to maintain sales of Lipitor by offering direct mailing of the drug on its Web site. Watson Pharmaceuticals ( WPI) said Wednesday it began shipping an authorized generic version of Lipitor. Pfizer shares rose 3.5% to $20.07 while shares of Watson Pharmaceuticals lost 4% to $64.62.

OmniVision Technologies ( OVTI), the digital imaging company, gave a weak outlook for the current quarter. OmniVision, which makes image sensor chips used in mobile phones, computers and other products, said it expects non-GAAP earnings of 5 cents to 17 cents a share for the quarter ending in January with revenue between $160 million and $180 million. Analysts expect Omnivision to post a profit of 26 cents a share in the quarter on revenue of $201.4 million. Omnivision fell 3.6% to $10.79.

WebMD ( WBMD) is exploring a sales process, according to a source with knowledge of the situation. The medical information company is already in discussions with private equity-firms, the source said, and has hired an investment bank, which is believed to be Credit Suisse. WebMD shares rose 2.8% at $36.22.

American Airlines and its parent AMR ( AMR) filed Tuesday for Chapter 11 bankruptcy protection. The stock rebounded by 25.4% to 33 cents after losing 79.2% of its value Tuesday to close at 34 cents.

The move by central banks to lower the cost of lending dollars was pushing the dollar lower and spurring commodities buying. The U.S. dollar index, which weighs the dollar against a basket of six currencies, fell 0.9% to $78.36. January oil futures rose 57 cents to close at $100.36, and February gold futures spiked $31.40 to finish at $1,750.30.

The benchmark 10-year Treasury fell 27/32, raising the yield to 2.087%.

-- Written by Andrea Tse in New York.

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