March 17, 2020 / 7:04 PM / 5 months ago

US STOCKS-Wall St rebounds from Monday's selloff as Fed boosts liquidity

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* Fed to buy debt directly from companies

* Defensive utilities, consumer staples lead S&P 500

* Indexes up: Dow 5%, S&P 500 5.8%, Nasdaq 5.9% (Updates to late afternoon)

By Caroline Valetkevitch

NEW YORK, March 17 (Reuters) - U.S. stocks jumped on Tuesday, a day after their steepest declines since the 1987 crash, as the Federal Reserve took further steps to boost liquidity as the coronavirus pandemic grips the global economy and markets.

The central bank relaunched a financial crisis-era purchase of short-term corporate debt in the hope that companies are able to continue paying workers and buying supplies through the pandemic.

Tuesday's move to buy back Commercial Paper followed several emergency measures taken by the U.S. central bank on Sunday, including slashing interest rates to near zero.

Investors "like that the Fed is willing to step in here and willing to step in big... That's an important message that they're sending to market participants," said Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute in Winston-Salem, North Carolina.

The Trump administration is pursuing a massive $850 billion stimulus package to buttress an economy reeling from the health crisis that has brought major cities in the United States to a standstill.

The pandemic is causing severe business and travel disruptions across the globe as people stay home and avoid their usual activities. Many market watchers are now bracing for a U.S. recession but are unable to see how deep it might be.

"Clearly it all will come down to a sentiment shift. Right now the predominant concern is that all the shutdowns of just about everything is going to lead to a recession," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

The Dow Jones Industrial Average rose 1,016.26 points, or 5.03%, to 21,204.78, the S&P 500 gained 139.41 points, or 5.84%, to 2,525.54 and the Nasdaq Composite added 408.00 points, or 5.91%, to 7,312.59.

So far, many of the measures announced by the policymakers and the government have not been able to stem the selloff in stocks.

Monday's drop was the benchmark S&P 500's third-biggest daily percentage drop on record, beaten only by the 1987 rout and the Great Depression crash in 1929 as investors fretted over a looming recession.

"It's not a monetary policy issue; it's a health issue," McMillion said. "But the markets are responding to the impact of this health issue, and that is where monetary policy can help. Had the Fed not acted at all, we would see market conditions much worse than they are."

The head of the U.S. securities regulator on Monday said that U.S. markets should stay open despite intense volatility, quashing speculation that the government might shut down the country's exchanges.

All the 11 S&P sectors were trading in the black, led by the defensive sectors including utilities and consumer staples.

Boeing Co's shares tumbled to a more-than-six-year low following a rating downgrade that reflected its worsening cash flow due to the extended grounding of its 737 MAX jet and the blow from the coronavirus pandemic.

Advancing issues outnumbered declining ones on the NYSE by a 1.48-to-1 ratio; on Nasdaq, a 1.92-to-1 ratio favored advancers.

The S&P 500 posted 7 new 52-week highs and 201 new lows; the Nasdaq Composite recorded 6 new highs and 817 new lows.

Additional reporting by Sinead Carew in New York; Medha Singh and Sanjana Shivdas in Bengaluru; Editing by Bernadette Baum

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