Hints of an interest rate cut lifted the markets higher with the Dow surging nearly 200 points to 13,150. Nasdaq jumped 44 points to 2625.

On the upside

Citigroup (NYSE: C) led the financial services sector which continued to rebound on hopes of an interest rate cut.

Shares of Freddie Mac (NYSE: FRE) rose after the lender's sale of $6 billion in preferred stock triggered lower than expected debt protection costs.

An analyst upgraded online retailer Overstock.com (Nasdaq: OSTK) on valuation and its growth prospects.

On the downside

Shares of Bidz.com (Nasdaq: BIDZ) continued to lose ground due to a disappointing outlook.

Sonic Solutions (Nasdaq: SNIC) announced that it would missed 3rd quarter targets on lower revenues due to consumer uncertainty about DVD standards.

Shares of Semtech (Nasdaq: SMTC) fell despite the semiconductor maker posting profits that more than doubled on high demand for its analog and mixed-signal semiconductors.

In the broad market, advancing issues outpaced decliners by a margin of more than 3 to 1 on the NYSE and by 2 to 1 on Nasdaq. The Russell 2000 which tracks small cap stocks rose 12 points to 756.