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Weak data in housing and regional factory activity triggered the latest round of bets that Bernanke will act, even though the Fed's options appear limited. Bernanke speaks to a central bank conference on Friday in Jackson Hole, Wyoming.

"I don't think anybody wants to be too short or negative in front of Bernanke's speech," said Jim Awad, managing director at Zephyr Management in New York.

The Dow Jones industrial average was up 322.11 points, or 2.97 percent, at 11,176.76. The Standard & Poor's 500 Index was up 38.53 points, or 3.43 percent, at 1,162.35. The Nasdaq Composite Index was up 100.68 points, or 4.29 percent, at 2,446.06.

Technology and other growth stocks drove much of the gains, with the Nasdaq rising more than 4 percent. The sharp rise echoed the wild swings the market experienced two weeks ago after Standard & Poor's downgraded United States' long-term credit.

Volume was a solid 9.35 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. The daily average for last year was about 8.47 billion.

Even financials, which had been knocked lower earlier by shares of Bank of America, ended positive, with the S&P Financials Index up 3.2 percent.

Bank of America Corp remained under pressure on fears of possible write-offs and the need for capital. Its stock fell 1.9 percent to $6.30 but well off the day's lows.

More than 561 million shares traded in Bank of America, accounting for nearly 6 percent of overall composite volume for the exchanges.

The market has been battered by concerns of another U.S. recession and the worsening euro zone debt crisis.

"This is how the start of a rally in an oversold market usually looks like: an aggressive short-term gain like today," said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire, suggesting the market may have hit the bottom.

The rally briefly stalled in the afternoon on news of a magnitude of 5.9 earthquake, which struck in Virginia and forced some building evacuations along the U.S. East Coast and Canada, but no major damage or injuries were reported.

Big percentage gainers on the S&P included technology shares Nvidia Corp and JDS Uniphase Corp, both rising about 10 percent.

Among financial stocks, American Express Co and JPMorgan Chase & Co were the top gainers on the Dow. American Express shares rose 4.1 percent to $46.42, while JPMorgan shares advanced 4.1 percent to $34.78.

On the NYSE, advancers beat decliners by a ratio of about six to one, while on the Nasdaq, about five stocks rose for every one that fell.

(Reporting by Angela Moon, Editing by Kenneth Barry)

Banks will be in focus after Swiss lender UBS AG (UBSN.VX) (UBS.N) said it plans to slash around 3,500 jobs, almost half of them from its investment bank, as it seeks to shave some 2 billion francs from annual costs by the end of 2013.

European stocks were up 1.6 percent in early trade, led by a rebound in cyclical shares such as industrials and miners, but volumes were thin as investors remained wary of another false start after last week's rebound from a 20-percent nosedive quickly fizzled out.

Market players were also cautious ahead of U.S. Federal Reserve Chairman Ben Bernanke's key speech at an annual central bank conference in Jackson Hole, Wyoming on Friday, during which he could unveil fresh measures to revive the struggling economy.

The Fed chairman looks set to discuss ways the central bank could tweak its balance sheet as a means to put further pressure on medium- and long-term interest rates and anchor them at low levels. These could be implemented in September and October at coming Fed meetings.

After the bell on Monday, shares of Goldman Sachs (GS.N) fell 2.4 percent to $104. Goldman CEO Lloyd Blankfein has hired Reid Weingarten, a high-profile Washington defense attorney, according to a government source familiar with the matter.

Investigations continue of Goldman and its role in the 2007-2009 financial crisis.

Shares in Goldman Sachs traded in Frankfurt (GS.F) were down 5.8 percent.

On the macro side, investors awaited data on new home sales for July and the Federal Reserve Bank of Richmond's August indexes on area manufacturing and service sectors.

HSBC's China Flash PMI showed China's factory sector is set to slightly slow in August, soothing concerns of a hard landing for the world's No.2 economy.

Brent crude rose toward $109 on Tuesday, while U.S. crude was up more than $1 as fighting in Libya continued and in anticipation of a fall in U.S. crude stockpiles.

U.S. stocks ended slightly higher on Monday after four weeks of losses as investors hesitated to take big risks without a catalyst for buying.

The Dow Jones industrial average .DJI was up 36.85 points, or 0.34 percent, at 10,854.50. The Standard & Poor's 500 Index .SPX was up 0.29 point, or 0.03 percent, at 1,123.82. The Nasdaq Composite Index .IXIC was up 3.54 points, or 0.15 percent, at 2,345.38.

(Reporting by Blaise Robinson; Editing by David Holmes)