Stocks shot higher yesterday, led by banking and technology shares, as a sharp rebound on the battered Tokyo Stock Exchange spurred a rally in key markets around the world.

The Dow Jones industrial average rose 125.74 points (1.7 per cent) to 7,698.22, less than 20 points shy of where it stood just before its 554-point plunge three weeks ago. Earlier in the session, the blue-chip barometer rose by as much as 166 points, nearly doubling its 170-point gain over the prior two session.

Broader stock indicators also rallied after the main stock index in Tokyo surged 8 per cent amid optimism that the Japanese government will take more aggressive steps to aid its floundering economy.

The technology-heavy Nasdaq composite index rose 30.59 to 1,614.10, giving it a three-session rebound of nearly 5 percent.