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Stocks surge to 5-month highs on Japan, services


NEW YORK (CNNMoney.com) — U.S. stocks rallied right out of the gate and continued to surge Tuesday, with all three major indexes gaining about 2% and finishing at their highest levels since May. Investors welcomed a surprise move by the Bank of Japan to cut its key lending rate, as well as improved data for the U.S. service sector.

The Dow Jones industrial average (INDU) jumped 193 points, or 1.8%, to finish at 10,945, its highest level since May 3. Gains were broad-based as 29 of 30 Dow issues closing higher, with Boeing (BA, Fortune 500), Bank of America (BAC, Fortune 500) and DuPont (DD, Fortune 500) logging the biggest increases.

The S&P 500 (SPX) added 24 points, or 2.1%, with Harley-Davidson (HOG, Fortune 500) closing up 9.1%. The tech-heavy Nasdaq (COMP) climbed 55 points, or 2.4%. Both indexes closed at their highest levels since May 12.

Early Tuesday, Japan’s central bank announced a move to lower its key interest rate to between 0% and 0.1%. It previously stood at 0.1%. The bank also said it would purchase about $60 billion of government bonds and other assets, to boost the pace of the country’s recovery.

The Bank of Japan downgraded its economic forecast, but investors took the monetary policy move as a hopeful sign for the world’s third-largest economy.

Investors were also encouraged after the Institute for Supply Management’s index measuring U.S. service sector activity rose more than economists had forecast.

“The markets are feeling reassured after Japan’s move to ease monetary policy and the fact that the service sector, which accounts for 90% of our economic activity, is stronger than we were expecting,” said Jack Ablin, chief investment officer at Harris Private Bank.

U.S. stocks are coming off of a big dip on Monday, when investors were feeling cautious ahead of corporate earnings season and key employment data due later in the week. Last week, they kicked off the start of October and the fourth quarter with modest gains.