U.S. stocks rallied Wednesday, with Bank of America, Caterpillar and J.P. Morgan Chase leading broad gains in a strong start to September after manufacturing data topped expectations.

The Dow Jones Industrial Average advanced 254.75 points, or 2.54%, to 10269.47, marking its biggest one day gain since July 7 and its fifth largest one day gain this year.

All 30 of the measure's components rose, led by Bank of America, which jumped 76 cents, or 6.1%, to 13.21. Caterpillar was also strong, up 3, or 4.6%, to 68.16, and J.P. Morgan added 1.38, or 3.8%, to 37.74.

The Nasdaq Composite gained 62.81, or 2.97%, to 2176.84. The Standard & Poor's 500 index climbed 30.96, or 2.95%, to 1080.29, with all of its sectors ending the session higher. The industrial and financial sectors posted the biggest percentage increases.

The gains followed a report from the Institute for Supply Management showing the U.S. manufacturing sector unexpectedly rebounded in August, with employment rising strongly. The data came on the back of encouraging manufacturing numbers from China.

The reports stood in great contrast to more downbeat numbers on the economy recently, and helped feed investors' thirst for a ray of hope following the market's worst August since 2001.

There were some weak spots in Wednesday's data. The Commerce Department reported U.S. construction spending declined in July to the lowest level in 10 years, and payroll giant Automatic Data Processing said private sector jobs in the U.S. fell 10,000 during August. However, investors overlooked those reports as the manufacturing data seemingly put the market into a euphoria.

European market

European stocks rallied Wednesday, as U.S. data showed an unexpected rise in the ISM manufacturing index, rekindling hopes of a strong recovery in the global economy.

The Stoxx Europe 600 index advanced 2.7% to end at 258.19 points. Overnight, positive economic reports from China and Australia had already buoyed sentiment.

Among the major European benchmarks, the French CAC 40 index was the top gainer, surging 3.8% to 3,623.84 points. The U.K.'s FTSE 100 index rose 2.7% to 5,366.41 points. The benchmark indexes in Italy, Spain and Denmark all gained more than 3%. Sweden's OMX Stockholm 30 index soared 3.7%.

Asian market

Asian stock markets were mostly upbeat Wednesday as solid economic data from Australia and China helped investors overcome worries over the health of the global economic recovery.

Japan's Nikkei Stock Average ended 1.2% higher, rebounding after touching a new 16 month low earlier.

The Shanghai Composite ended 0.6% lower, while Hong Kong's Hang Seng Index added 0.4%. Thailand's SET index tacked on 0.7% to end at 919.34, its highest level since December 1996.

Chinese manufacturing data failed to help support China's Shanghai Composite, as declines in small and medium sized companies, which had seen sizeable gains throughout the summer, dragged the index into negative territory.

Real estate developers also fell after China's banking regulator reiterated Tuesday it will firmly curb speculative investment in the sector.

Poly Real Estate Group slid 1.3% and Gemdale was down 1.1%. The encouraging data from China helped to bolster Japanese stocks, with exporters' shares getting an added fillip from a pledge by Democratic Party of Japan presidential candidate Ichiro Ozawa to intervene in currency markets to curb the yen's steep rise if elected party leader.

Among exporters, Honda Motor added 1.0%, Canon tacked on 1.2% and Olympus rose 3.0%.

Commodities and metals

Base metals closed higher on the London Metal Exchange Wednesday on the back of stronger equities and new figures indicating an unexpected rebound in the U.S. manufacturing sector.

The metals had rallied in early trade following strong Chinese manufacturing data and held gains as positive sentiment spilled into the afternoon, leading Wall Street to open higher.

The most significant boost leading into the PM kerb close came from the U.S. Institute for Supply Management's manufacturing purchasing managers' index, analysts said, with the positive figures contrasting a recent spate of weak data out of the world's largest economy.

The market shrugged off weak U.S. construction spending figures, which Lennon said had been expected to remain frail.

Crude oil futures settled higher Wednesday, helped by improving data on U.S. manufacturing and rising equities markets that trumped fears about increasing oil supplies.

Light, sweet crude oil for October delivery settled $1.99, or 2.7%, higher at $73.91 a barrel on the New York Mercantile Exchange, rebounding from a 3.7% decline in the previous session. Brent crude on the ICE futures exchange settled $1.71 higher at $76.35 a barrel.

Gold futures finished slightly lower as stronger than anticipated manufacturing data dulled some of the safe haven shine that had earlier sent the metal to fresh two-month highs.

The most actively traded gold contract, for December delivery, fell $2.20, or 0.2%, to settle at $1,248.10 on the Comex division of the New York Mercantile Exchange.