U.S. stocks and Treasuries surged and the dollar tumbled after the Federal Reserve unexpectedly announced plans to buy $1 trillion of bonds in an effort to lower consumer borrowing costs and end the recession.

The Standard & Poor’s 500 Index added 2.1 percent, extending its rally since last week’s 12-year low to 17 percent. Yields on 10-year notes dropped the most since at least January 1962 after the central bank said it will spend $300 billion buying Treasury debt and up to another $750 billion on bonds backed by government-controlled mortgage companies. The dollar sank the most against the euro since September 2000.

The S&P 500 rose to 794.35 at 4 p.m. in New York and earlier surpassed 800 for the first time in a month. The stock index trimmed its 2009 loss to 13 percent. Yields on benchmark 10-year notes plunged 0.50 percentage point to 2.51 percent. The dollar depreciated as much as 3.3 percent to $1.3493 per euro.

Fed Chairman Ben S. Bernanke is trying to bolster housing and hasten the end of the 14-month U.S. recession. He stepped up efforts after unemployment increased to 8.1 percent and economists forecast the economy will shrink through the middle of the year. Fed officials also kept the benchmark interest rate at between zero and 0.25 percent to combat the “weak” short- term economic outlook, according to a statement today.

(Bloomberg.com)