The Dow Jones Industrial Average jumped 254.75 points (2.54 percent) to 10,269.47 at the close, while the broader S&P 500 index gained 30.96 points (2.95 percent) to 1,080.29 points.
The tech-rich Nasdaq composite index rose 62.81 points (2.97 percent) to 2,176.84.
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Trading was boosted after data showed the US manufacturing sector expanded for the 13th straight month in August, beating most analysts' expectations.
The Institute of Supply Management said its manufacturing index rose to 56.3 points, from 55.5 percent in July, a much larger jump than the 52.9 percent predicted by economists.
A reading above 50 percent indicates an expanding manufacturing sector.
Nomura Global Economics analyst Zach Pandl said "the better-than-expected result suggests the manufacturing sector has a bit more momentum than we had anticipated, and that the economy is very far from recession."
The strong US figures followed data from China showing that manufacturing in the world's second biggest economy also strengthened last month, easing fears the economy was heading for a sharp slowdown in the second half of 2010.
Analysts said the market's upwards leap was in part due to an excessively negative economic outlook on Wall Street.
"We had a level of pessimism I have never seen. Everything was black, people spoke only of a double-dip recession," said Gregori Volokhine, an analyst at Meeschaert New York.
"Now every time we will have data that is better than expected we will see the markets jump because everyone was ready for a catastrophic scenario."
Traders set aside a report from payrolls firm ADP saying that US private sector employment dropped in August for the first time in seven months as well as government data showing a bigger-than-expected drop in construction spending.
Among shares in focus, computer giant Apple saw its stocks rise by 2.97 percent after its chief executive Steve Jobs unveiled a refreshed line of iPods media players in a highly-anticipated event in San Francisco.
The bond market was lower.
The yield on the 10-year US Treasury bond was up to 2.582 percent from 2.477 percent on Tuesday while that on the 30-year bond rose to 3.662 percent from 3.533 percent. Bond yield and prices move in opposite directions.
