NEW YORK - US stocks roared higher on Monday as a strong earnings report from IBM and growing prospects for a hefty rate cut by the Federal Reserve helped fuel a rebound from a difficult week on Wall Street.

The Dow Jones Industrial Average rallied 171.85 points (1.36 per cent) to close at 12,778.15 and the tech-heavy Nasdaq composite lifted 38.36 points (1.57 per cent) to 2,478.30.

The broad-market Standard & Poor's 500 index advanced 15.23 points (1.09 per cent) to 1,416.25.

The computer giant helped allay fears of soft corporate earnings in response to slipping economic conditions. Other tech shares gained on the news and the broader market rallied in response.

Also helping was growing sentiment that the Federal Reserve would slash interest rates substantially to counter economic weakness.

Analysts at Briefing.com said the market was pricing in a 56 per cent probability of a half-point cut in the federal funds rate, currently at 4.25 per cent, and a 44 per cent chance of a bigger cut of three-quarters of a percentage point.

Fed chairman Ben Bernanke 'effectively told us last week that he is prepared to cut rates aggressively from their current levels if the economy appears to be going into recession or if there is serious renewed distress within the financial markets,' said Deutsche Bank economist Mr Joseph LaVorgna.

'It should be noted there has been substantial improvement in the inter-bank lending market, and our tracking of employee tax receipts and bank borrowing tells us that we are not entering a recession.'

Mr Bob Dickey at RBC Dain Rauscher said that the steep losses of early 2008 have led to what 'looks like a short-term bottom' for the stock market.

Mr Dickey said he expected 'at least a bounce of tradable proportions,' and added that 'with so much talk of a recession and a bear market, it's a contrarian's duty to be looking in the other direction.' IBM's stock led the gainers, rallying 5.4 per cent to US$102.39 after its earnings news.