Major indexes leap 3 pct.

NEW YORK - Wall Street began the second quarter with a big rally yesterday as investors rushed back into stocks, optimistic the worst of the credit crisis has passed and the economy is faring better than expected. The Dow Jones industrials surged nearly 400 points, and all the major indexes were up more than 3 percent.

Financial stocks were among the big winners after Lehman Bros. Holdings Inc. and Switzerland's UBS AG issued new shares to help bolster their balance sheets. Investors looked past UBS's announcement that it would take a fresh $19 billion write-down due to additional declines in the value of its mortgage assets and other credit instruments, after an $18 billion write-down last year.

With the financial-stocks news and a fresh quarter ahead of them, investors appear quite willing to bet the worst of the damage from the nation's credit struggles has been felt. Moreover, the banks' moves buttressed the view that financial-services companies are taking aggressive action to improve their capital bases and stave off a possible collapse similar to that of the Bear Stearns Cos. Inc.

Analysts say they believe there must be a recovery in bank and brokerages to lead major stock indexes higher. Some of the biggest financial companies had their sharpest moves of the year yesterday - Citigroup Inc. shot up 11.30 percent, JPMorgan Chase & Co. rose 9.43 percent, and Lehman surged 17.80 percent.

"Investors have a difficult time making decisions about the stock market if they don't have confidence in major financial institutions, so there's been a lot of sideline cash," said Richard Cripps, chief market strategist for Stifel Nicolaus & Co. Inc. "The extreme conditions that we've seen here over the past few months has been missing that confidence . . . but that appears to be changing, and we're seeing the response."

Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 - indicating a contraction, but a smaller one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.

The Dow rose 391.47, or 3.19 percent, to 12,654.36. The Standard & Poor's 500 index rose 47.48, or 3.59 percent, to 1,370.18. The Nasdaq composite index rose 83.65, or 3.67 percent, to 2,362.75.

The advance was in contrast to a lackluster session Monday in the final session of a dismal first quarter. Major indexes ended the first three months of 2008 with massive losses.

Wall Street also was relieved to see the feeble dollar regain some strength against the euro. The euro fell to $1.5596 from $1.5785 late Monday in New York.

Retreating commodities prices, which had hit historic highs in recent months, also were cause for optimism. Crude fell 60 cents to settle at $100.98 on the New York Mercantile Exchange after earlier falling below $100.

"This is a nice way to begin the second quarter," said Todd Leone, managing director of equity trading at Cowen & Co. "All the financials are up big, and there's a sense that things are turning. We definitely have not seen the last of the credit crisis, but we're getting closer."

The stock rally was underpinned by the announcements from UBS and Lehman Bros. that they are boosting capital by issuing new stock. Shares of banks and brokerages hovered near multiyear lows in recent months as investors feared that heavy losses from investments tied to subprime mortgages would be overwhelming.

Widespread concerns about Bear Stearns' financial position forced the investment bank to sell itself to JPMorgan in a deal engineered by the Federal Reserve - and that stoked fears that other investment houses might follow.

JPMorgan rose $4.05, or 9.43 percent, to $47.00; while Bear Stearns was up 36 cents, or 3.43 percent, at $10.85 - slightly above the $10-per-share acquisition price.

UBS, one of Europe's biggest banks, said that it would issue up to $15 billion in new stock and that its chairman, Marcel Ospel, had quit. Its shares surged $4.21, or 14.62 percent, to $33.01.

Lehman Bros., which had been dogged by speculation it might reveal losses big enough to cripple the company, yesterday raised $4 billion of capital. Lehman rose $6.70, or 17.80 percent, to $44.34.