The Dow Jones Industrial Average jumped 192.67 points (1.86 per cent) to 10,558.12 and the Nasdaq advanced 51.63 points (2.60 per cent) to 2035.36 in the first trades.
The broad-market Standard & Poor`s 500 index leapt 27.37 points (2.47 per cent) to 1133.79.
Market action came after a record plunge of 777 points for the blue-chip Dow index in the wake of a rejection by the US House of Representatives of a massive $US700 billion ($879.78 billion) plan to aid the troubled banking sector.
Liz Ann Sonders at Charles Schwab & Co said part of the gains represent "a simple and natural rebound from the carnage of yesterday after some time to digest the implications of the House voting no on the mortgage rescue bill".
"It may also reflect that the Asian markets didn`t tumble as much as some expected after yesterday`s US market plunge," she added.
Ms Sonders said the market still held out hopes for passage of some aid plan to help the financial sector recover from the bursting of the housing bubble.
"The Bush administration probably realises it can`t suffer another defeat and they will likely pull out all the stops to get the few additional votes they need, which will most likely come from the Republican side," she said.
"A few Democrats could probably be pulled over, too, particularly if a compromise can be drafted."
"Funding constraints threaten to further damage the US economy, which is facing a more severe downturn. The odds are increasing that the economy will contract in the fourth quarter," he said.
Some analysts pointed out that extreme moves like yesterday`s collapse often represent overreactions that can lead to strong rebounds.
"Yesterday`s violent reaction to the `unthinkable` failure of the rescue legislation allowed players to act out their worst fears over the potential market outcome," said Ray Hanson at RBC Capital Markets.
"This flushing out could easily set the stage for an equal-and-opposite reaction to the upside."
