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The Dow posted its best day since March 2009 after the Federal Reserve, the European Central Bank and other major central banks stepped in to head off escalating funding pressures that threaten the key arteries of the world's financial system.

The S&P 500 scored its best daily percentage gain since August.

The central banks' liquidity move touched off a buying frenzy in financial shares. The S&P financial sector index gained 6.6 percent, with Bank of America the most actively traded stock. The stock jumped 7.3 percent to $5.44 on more than 420 million shares traded.

The drama in Europe kept the U.S. stock market on a roller-coaster ride throughout the month. For November, the S&P ended down just 0.5 percent, but the month was marked by sharp daily swings.

"You don't have to fix everything, you have to be on a path towards fixing things," said Tobias Levkovich, chief U.S. equity strategist at Citigroup in New York.

"Markets will reward you for the efforts you are making as long as you are moving in the right direction. It's the carrot and the stick; you get rewarded when you do the right thing, and you get punished when you do the wrong thing."

The Dow Jones industrial average shot up 490.05 points, or 4.24 percent, to end at 12,045.68. The Standard & Poor's 500 Index jumped 51.77 points, or 4.33 percent, to 1,246.96. The Nasdaq Composite Index soared 104.83 points, or 4.17 percent, to close at 2,620.34.

The Dow scored its largest daily gain -- in terms of points and percentage -- since March 23, 2009.

The S&P 500 posted its best daily percentage advance since August 11.

For the month, the Dow gained 0.8 percent, while the Nasdaq slid 2.4 percent.

Other economically sensitive sectors, including energy, materials and industrials, also were strong performers for the day.

Copper and oil futures rose sharply, while the S&P materials sector index jumped 5.9 percent.

The central banks' actions were intended to ensure that European banks, facing a credit crunch, have enough funding amid the euro zone's worsening sovereign debt crisis.

The moves followed an unexpected cut in bank reserve requirements in China, intended to boost an economy running at its weakest pace since 2009.

Among the banks, shares of JPMorgan Chase & Co gained 8.4 percent to $30.97, its biggest daily percentage gain since May 2009.

The gains in financial shares came despite Standard & Poor's move to cut the credit ratings of 15 big banks, mostly in Europe and the United States, late on Tuesday.

Further encouraging investors, the latest U.S. data suggested the U.S. economy was moving more solidly toward recovery. The U.S. private sector added the most jobs in nearly a year in November, while business activity in the U.S. Midwest grew faster than expected in November.

The day's volume was high, with nearly 10 billion shares changing hands during the day on U.S. exchanges compared with the daily average of 7.96 billion shares.

Advancers beat decliners on the NYSE by nearly 7 to 1 and on the Nasdaq, by about 5 to 1.

(Reporting by Caroline Valetkevitch; Additional reporting by Chuck Mikolajczak and Rodrigo Campos; Editing by Jan Paschal)

The potential bid by the consortium, which would include China's Alibaba Group and Japan's Softbank Corp, has not yet been finalized, the source and two other people familiar with the matter said.

The Chinese e-commerce giant, whose primary interest is in buying back the 40 percent stake in Alibaba owned by Yahoo, is still keeping its options open, and said it has not decided yet whether to participate in a bid for all of Yahoo.

"Alibaba Group has not made a decision to be part of a whole company bid for Yahoo," Alibaba Group spokesman John Spelich said in an emailed statement on Wednesday.

Blackstone and Bain declined to comment, while Yahoo and Softbank representatives were not immediately available to comment.

Although a bid for all of Yahoo is not yet on the table, the latest twist turns on the heat on Yahoo's board, which has received at least two offers for a minority stake in the company according to people familiar with the matter -- one from a consortium of Silver Lake and Microsoft Corp and another by TPG Capital. Silver Lake and Microsoft have declined to comment.

Yahoo's shares closed up 1 cent at $15.71 on Wednesday on the New York Stock Exchange.

(Additional reporting by Greg Roumeliotis and Soyoung Kim in New York; Editing by Steve Orlofsky and Carol Bishopric)

Standard & Poor's reduced its credit ratings on 15 big banking companies, mostly in the Europe and the United States, on Tuesday as the result of a sweeping overhaul of its ratings criteria.

JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), Wells Fargo & Co (WFC.N), Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N), Barclays Plc (BARC.L), HSBC Holdings Plc, (HSBA.L) Royal Bank of Scotland AAHAUS.UL Group Plc and UBS AG (UBSN.VX), were among the banks that had their ratings reduced by one notch each.

The ADP Employment report for November, due at 1315 GMT, is expected to show its best reading since April and the third consecutive gain greater than 110,000. The Pending Home Sales Index, to be released at 1500 GMT, is seen rising for October.

Samsung Electronics (005930.KS) is set to resume selling its Galaxy tablet computer in Australia as early as Friday, after the South Korean technology firm won a rare legal victory in a long-running global patent war with Apple Inc (AAPL.O).

Boeing (BA.N) could be at a disadvantage to Airbus because the bankruptcy of AMR Corp (AMR.N), the parent of American Airlines, places up to $40 billion of jet orders at the mercy of a U.S. bankruptcy court, lawyers and bankruptcy experts said.

Newmont Mining Corp (NEM.N) said it has suspended construction work at its Conga project in Peru in agreement with the government, for the safety of employees and the community.

U.S. communications regulators released a staff report criticizing AT&T Inc's (T.N) $39 billion plan to purchase T-Mobile USA, even though they agreed on Tuesday to let the companies withdraw their request for approval.

Goldman Sachs (GS.N) has raised $600 million from clients such as pension funds, wealthy families and large institutions for a new fund that would provide start-up money to hedge-fund managers, the Wall Street Journal said.

European stocks .FTEU3 fell 0.8 percent on Wednesday, snapping a sharp three-session rally, after the Standard & Poor's downgrade of a number of European and U.S. banks.

On Tuesday, the Dow and S&P 500 advanced for a second day on Tuesday as stronger-than-expected consumer confidence data and hopes for further progress on a solution to Europe's fiscal mess bolstered sentiment.

Euro zone ministers agreed to ramp up the firepower of their rescue fund, but couldn't say by how much, and may turn to the IMF for more help as a jump in Italy's borrowing costs pushed the region closer to financial disaster.

The Dow Jones industrial average .DJI closed up 32.62 points, or 0.28 percent, at 11,555.63. The Standard & Poor's 500 Index .SPX ended up 2.64 points, or 0.22 percent, at 1,195.19. The Nasdaq composite index .IXIC closed down 11.83 points, or 0.47 percent, at 2,515.51.

(Reporting by Atul Prakash. Editing by Jane Merriman)

"We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday as EU finance ministers met.

Euro zone ministers agreed on Tuesday night on detailed plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.

Italian and Spanish bond yields resumed their inexorable climb towards unsustainable levels on Wednesday, as markets assessed the rescue fund boost as inadequate.

Stocks fell and the euro weakened after ratings agency Standard & Poor's hit some of the world's leading banks with a credit downgrade.

"It must also be remembered that the EFSF is already funding at very wide (borrowing) levels over Germany, struggled in its last auction to raise the required funds and would have its rating put under severe pressure by any rating downgrade of France," Rabobank strategists said in a note.

"This must call into question any plans related to the EFSF. It is yesterday's solution and the market has simply moved on."

Two years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fuelling doubts about the survival of the single currency.

"We are now looking at a true financial crisis -- that is a broad-based disruption in financial markets," Christian Noyer, France's central bank governor and a governing council member of the European Central Bank, told a conference in Singapore.

The 17-nation Eurogroup adopted detailed plans to insure the first 20-30 percent of new bond issues for countries having funding difficulties and to create co-investment funds to attract foreign investors to buy euro zone government bonds.

Both schemes would be operational by January with about 250 billion euros from the euro zone's EFSF bailout fund available to leverage after funding a second rescue program for Greece, Eurogroup chairman Jean-Claude Juncker said.

The aim was for the IMF to match and support the new firepower of the EFSF, Juncker told a news conference.

But with China and other major sovereign funds cautious about investing more in euro zone debt, EFSF chief Klaus Regling said he did not expect investors to commit major amounts to the leveraging options in the next days or weeks, and he could not put a figure on the final size of the leveraged fund.

"It is really not possible to give one number for leveraging because it is a process. We will not give out a hundred billion next month, we will need money as we go along," Regling said.

RADICAL MEASURES?

Most analysts agree that only more radical measures such as massive intervention by the ECB to buy government bonds directly or indirectly can staunch the crisis.

The prospects of drawing the IMF more deeply into supporting the euro zone are uncertain. Several big economies are skeptical of European calls for more resources for the global lender.

The United States, Japan and other Asian states are hesitant to chip in unless Europe commits to first use its own resources to fix the problem and peripheral euro zone states map out more concrete steps on fiscal and economic reforms.

"Nobody wants to spend money on something they doubt would work," a G20 official said.

"That goes not only for Europe but for any other country outside Europe. The threshold for seeking IMF help is quite high. Those seeking help need to be willing to give up some of their jurisdiction on fiscal policy and willing to undergo painful reform. Mere pledges and speeches won't do."

New Italian Prime Minister Mario Monti outlined his plans to the euro zone ministers and was told he would have to take extra deficit cutting measures beyond an austerity plan already adopted to meet its balance budget promise in 2013.

Italian bond yields are now above the levels at which Greece, Ireland and Portugal were forced to apply for EU/IMF bailouts, and Rome has a wall of issuance due from late January to roll over maturing debt.

GREECE GETS CASH

The Eurogroup ministers agreed to release their portion of an 8 billion euro aid payment to Greece, the sixth installment of 110 billion euros of EU/IMF loans agreed last year and necessary to help Athens stave off the immediate threat of default.

Juncker said the money would be released by mid-December, once the IMF signs off on its portion early next month.

G20 leaders promised this month to boost the agency's warchest. However, another G20 source said policymakers had made no progress since then in efforts to boost IMF resources, which at current levels may not be sufficient to overcome the crisis.

EU sources said one option being explored is for euro system central banks to lend to the IMF so it can in turn lend to Italy and Spain while applying IMF borrowing conditions.

"We will discuss with the ECB. The ECB is an independent institution, so we will put on the table some proposals and after that it is for the ECB to take the decision," Belgian Finance Minister Didier Reynders told reporters.

With Germany opposed to the idea of the ECB providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of calming markets and fast.

The ECB shows no sign yet of responding to widespread calls to massively increase its bond-buying although EU officials said it may have to shift, even if the EFSF was bolstered by IMF help.

"Despite the attempt to leverage the EFSF, I would agree that the IMF and European Central Bank have to be in the boat," one euro zone source told Reuters.

A Reuters poll of economists showed a 40 percent chance of the ECB stepping up purchases with freshly printed money within six months, something it has opposed so far.

The poll forecast a 60 percent chance of an ECB rate cut to 1.0 percent next week and a big majority of economists said they expect the central bank to announce new long-term liquidity tenders to help keep banks afloat at its next meeting on Dec 8.

EU powerhouse Germany has pinned its efforts on a drive for closer fiscal integration among euro zone members with coercive powers to veto euro zone members' budgets that breach EU rules.

Chancellor Angela Merkel told lawmakers she would not make a deal at a December 9 European Union summit to drop resistance to joint euro zone bonds in exchange for progress on strengthening fiscal rules, MPs quoted her as saying.

She told a closed-door meeting Europe was "a long way from euro bonds," suggesting they may not be ruled out forever.

(Additional reporting by Marius Zaharia in London, Erik Kirschbaum in Berlin, Robin Emmott and John O'Donnell in Brussels, Saeed Azhar and Kevin Lim in Singapore; Writing by Paul Taylor/Mike Peacock; Editing by Neil Fullick)

European share markets were set to dip, with financial spreadbetters expecting Britain's FTSE 100 .FTSE and France's CAC-40 .FCHI to open down 0.9 percent and Germany's DAX .GDAXI to open down 0.6 percent. .EU

An early rise in Asian shares was mostly seen as a correction to last week's huge selling, with investors only tepidly scaling back risk aversion as they waited for more euro zone debt sales and meetings ahead.

MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS rose as much as 0.5 percent but then reversed course and was down 0.6 percent. It rose on Monday and Tuesday after slumping to a seven-week low on Friday. The index was set for a monthly loss of around 9 percent.

Japan's Nikkei .N225 ended down 0.5 percent, weighed by the downgrade by Standard & Poor's of several major U.S. and European banks. Financial firms dragged Hong Kong and China shares lower -- the Shanghai Composite was down 3.7 percent -- after a Chinese central bank adviser dashed hopes of a monetary policy easing. .T

Focus is turning to a crucial European Union summit on December 9, with Germany and France working to propose a more rapid European fiscal integration while Germany's opposition to an expanded role of the European Central Bank in lending to the region's financially-strapped economies has hurt market sentiment.

"The focus remains on who will give money, to which no fresh news was provided," said Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo, adding that investors were likely relaxing their risk aversion stance but not turning risk-on yet.

"In the end, whether the ECB will become more actively involved in the debt crisis is key as it is the only viable lender. All other developments are mere technicals."

The euro inched up 0.1 percent to $1.3333, but still well below Tuesday's high of $1.3443. <FRX/>

U.S. stocks rose on Tuesday on euro zone hopes as well as a bounce in U.S. consumer confidence in November in another sign the U.S. economy remains on a recovery path.

"There is still a lot of concern about what's happening in the euro zone, but investors appear to be just a little bit more hopeful that progress has been made," said Juliette Saly, market analyst at Commonwealth Securities in Sydney.

"Also heading into the end of the year, investors see our market has been more sold off than the U.S," she said, adding also that follow-through movement hasn't been all that strong and volume was quite low.

On Wednesday, the benchmark Australian share index .AXJO rose 0.4 percent to a one-week high, as banks gained and data showed record business investment in the third quarter.

This month, the Dow Jones industrial average .DJI has lost 3.3 percent while the Standard & Poor's 500 Index .SPX has fallen 4.6 percent.

Euro zone officials agreed on Tuesday to leverage the firepower of their bailout fund, the European Financial Stability Facility (EFSF), using it as an insurance scheme and a co-investment program. They also agreed to extend aid payments to Greece and Ireland.

Hopes rose for more involvement from the IMF after Eurogroup president Jean-Claude Juncker said they have agreed to rapidly explore ways of boosting the IMF's resources through bilateral loans so it can match the leveraged EFSF's capabilities.

FUNDING STRESS

Italy, which faces a dire funding situation with its skyrocketing borrowing costs, has had preliminary discussions with the IMF about financial support, but no decision has been taken, several sources close to the situation said.

On Tuesday, Italy had to pay a record 7.89 percent yield for its 3-year bonds, above levels which Greece, Ireland and Portugal were forced to apply for international bailouts, but drew strong demand, with the maximum 7.5 billion euros sold.

The inversion of three-year yields being above the 7.3 percent 10-yield was also noted in the Italian credit default swap curve, where the shorter-dated contracts were quoted higher than the 5-year CDS.

Spain and France are due to tap the market on Thursday.

Euro zone funding strains persisted on Tuesday, with the spread between three-month euro Libor rates and overnight indexed swap rates reaching 87 basis points, near 90 hit in November, its highest since March 2009.

Banks were reluctant to lend to each other, pushing one-year euro/dollar cross currency basis swaps, or the premium that a borrower of dollars needs to pay to access funds, to 108 basis points, its most expensive level since 115 basis points in late 2008.

Asian credit markets weakened, with spreads on the iTraxx Asia ex-Japan investment grade index widening by four basis points on Wednesday.

"Markets want to see more definitive action and until then we wont see aggressive buying just on positive headlines," said a Singapore-based trader with a European bank.

(Additional reporting by Umesh Desai in Hong Kong; Editing by Richard Borsuk)

Nishimura, known as one of more pessimistic board members, also said Tokyo must take resolute action if currency moves are out of line with economic fundamentals in an attempt to keep markets on guard against another yen-selling intervention in the event of a renewed yen spike.

"Europe's sovereign debt problems are essentially the result of expanding imbalances in the region ... thus we need to be aware that there is no immediate silver bullet for solving its problems," Nishimura said in a speech to business leaders in Kyoto, western Japan.

"We need to brace ourselves for global financial market tension remaining high for a long time. We must be mindful of the risk of some shock triggering a widespread credit crunch," said Nishimura, who is one of the BOJ's two deputy governors.

Nishimura became the latest of the BOJ's nine-member policy board to warn that the euro zone debt crisis posed the biggest risk to Japan's economy with repercussions already felt widely across the globe.

IMF ROLE

Japan's economy has rebounded from a recession triggered by the March 11 earthquake and tsunami but is expected to slow sharply this quarter as the initial spurt driven by companies restoring supply chains and production facilities tails off.

Data released earlier on Wednesday showed factory output rose more than expected as automakers continued to restock inventory overseas after restoring supply chains hit by the March earthquake.

Nishimura stuck to the BOJ's view that the world's third largest economy is set to resume a moderate recovery supported by the strength of emerging economies and reconstruction work.

But he added that the forecast faced various uncertainties with Europe's debt crisis seen weighing on global growth and on Japanese exports as the yen continues to draw safe-haven demand.

"We need to be mindful of the fact that the yen will likely draw demand as a relatively safe currency as risk aversion increases among global investors amid continued tensions in global markets," Nishimura said.

"If the yen rises sharply in a way that deviates from economic fundamentals, companies may accelerate the pace at which they shift production overseas in an irrecoverable way."

Concern about the impact of the yen's strength and Europe's debt crisis on Japan's economic recovery prompted its rating agency R&I announce a review for a possible downgrade of its AAA rating for the nation's debt.

"R&I positively views the fiscal consolidation stance of the (Prime Minister Yoshihiko) Noda administration, which took office at the end of August," it said in a statement.

"Nevertheless, with a delay in implementing measures for earthquake reconstruction and the persistently strong yen, the economic recovery lacks strength. Furthermore, the deepening European sovereign debt crisis and other factors are increasing uncertainty about external demand."

The BOJ, which meets for a rate review on December 20-21, could offer additional stimulus to help sustain the economy's recovery depending on how share prices and the yen perform, analysts say.

Europe's sovereign debt crisis has shown little sign of letup with investors fleeing the euro-zone bond market, causing yields in Italy to spike.

In Brussels, European finance ministers agreed to strengthen the euro zone's bailout fund and said they could ask the International Monetary Fund about more aid as bond yields surge across the region.

Nishimura said it would be natural to expect the International Monetary Fund to play a role in helping resolve Europe's debt woes, adding that in general Japan should do what it can to expand the global lender's functions.

Japan intervened in the currency market and eased monetary policy in October to ease the pain on the export-reliant economy from sharp yen rises and slowing overseas growth.

The BOJ kept monetary settings unchanged this month but has signaled its readiness to ease policy again if Japan's economic recovery comes under threat.

Nishimura surprised markets by proposing unsuccessfully in April that the BOJ should boost its asset purchases. He did not repeat the proposal in subsequent meetings and has voted with the majority.

(Editing by Michael Watson and Tomasz Janowski)