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The sharemarket gave up some of its early gains but still managed to close up 6 per cent, as investors flocked back to the sharemarket.
Confidence returned to markets around the world as investors took heart from authorities' pledges to shore up banks, in an attempt to boost liquidity and stem a global economic crisis.
"Pretty much the market's become a safer place this week than it was last week," ABN Amro senior dealer Bryon Burke said.
"It may not be a one-day wonder, it could be a sigh of relief that the uncertainty's over. The playing field's changed over the weekend."
The benchmark NZSX-50 index closed up 166.6 points, or 5.99 per cent, at 2948.97. Yesterday it lost 22.9 points, or 0.8 per cent, and has fallen for the past seven sessions. The index was above 3230 points early this month.
Today's substantial recovery came after last week's panic selling as confidence leaked out of world markets.
"Those buyers who were nibbling away on Monday and Tuesday started getting nervous on Wednesday, come Thursday they'd given up, and by Friday they'd turned to be a seller," Mr Burke said.
As a result, shares were generally oversold beyond a level which was reasonable even given a weakening economy. It would now take some time to work out appropriate valuations.
"Definitely the immediate benefactors are the leading stocks, which are the most liquid and have been quite hard hit in recent times because they're the easiest ones to sell in and out of," Mr Burke said.
Among the leading stocks, Telecom was up 10c at 258, Contact Energy lifted 42c to 747, Fletcher Building was up 50c to 635, and Auckland International Airport was up 15c at 182.
The largest gains in percentage terms were by Blis Technologies, up 28.5 per cent to 4.5c, Ryman Healthcare, up 16.4 per cent to 163, and Charlies Group, up 16 per cent to 12.3c.
Other stocks to show strong gains were NZ Refining, up 59c to 659, Sanford, up 30c to 535, Port of Tauranga, up 36c to 651, and Mainfreight, up 24c to 534.
None of the top-50 stocks were down.
Dual-listed Australian banks showed the largest increases, with ANZ Banking Group adding 241 to 2071 and Westpac up 170 to 2570.
Australian shares were up 3.2 per cent, adding to yesterday's gain of 5.6 per cent. Asian stocks also surged ahead, with Japan's Nikkei up more than 13 per cent.
Earlier, US stocks posted their largest one-day percentage rise on record. The Dow Jones industrial average closed up 11.1 per cent at 9387.61, the Standard & Poor's 500 Index surged 11.6 per cent to 1003.35, and the Nasdaq Composite Index advanced 11.8 per cent, to 1844.25.
The FTSEurofirst 300 index of top European shares closed 10.1 per cent higher at 937.41.
On Monday, the US government agreed to take US$25 billion ($41.7 billion) stakes in a number of large banks, following pledges from industrialised nations - including New Zealand and Australia - to bolster their own banks.
- NZPA
