Stocks snapped a two- day slide on Wednesday on news the government is shoring up life insurers and optimism about consumer spending after Bed Bath & Beyond Inc reported a better-than-expected profit.

Life insurers, whose capital base has been eroded by falling markets, have met requirements for government funds, the U.S. Treasury said. The news lifted shares of insurance companies, including Prudential Financial

, which was up nearly 8 percent.

But in the latest sign of the economic downturn's impact, Moody's Investors Service stripped Warren Buffett's Berkshire Hathaway of its top rating of Aaa after the closing bell, citing the recession and the severe decline in stocks.

The Nasdaq surged nearly 2 percent on hopes that a recovery in business spending will boost tech profits and after Bed Bath & Beyond jumped 24.3 percent to $31.70 on sales that were not as bad as feared in the last quarter.

The mood is improving that maybe the economy will come back sometime, and both consumer discretionary and tech are cyclical, said Al Goldman, chief market strategist at Wachovia Securities in St. Louis.

The Dow Jones industrial average <.DJI> added 47.55 points, or 0.61 percent, to 7,837.11. The Standard & Poor's 500 Index <.SPX> gained 9.61 points, or 1.18 percent, to 825.16. The Nasdaq Composite Index <.IXIC> shot up 29.05 points, or 1.86 percent, to 1,590.66.

FEAR BAROMETER FALLS

Meager volume marked the session again, but in a sign that investors are becoming less fearful, the CBOE Volatility Index <.VIX>, or VIX, closed at its lowest level since early January. The VIX fell 3.8 percent to end at 38.85.

Stocks cut gains and the Dow briefly turned negative after minutes from the Fed's most recent meeting showed the Federal Reserve's policy-makers lowered projections for real gross domestic product in the second half of the year and 2010, reviving worries about the U.S. economy's health.

In Washington, securities regulators voted to seek public comment on five proposals to curb short selling, which critics have blamed for deepening the financial crisis.

Analysts said market reaction was muted as the proposals had been expected. They noted that Wall Street remained divided over the effectiveness of potentially bringing back the uptick rule.

CENTEX AND QUALCOMM CLIMB

In the home builders' sector, Pulte Homes

said it would buy Centex Corp for $1.3 billion in stock in a deal that would create the largest U.S. home builder. Centex jumped 18.9 percent to $9.06, while Pulte tumbled 10.5 percent to $9.64.

Among insurers, Prudential climbed 7.7 percent to $23.81 and Lincoln National jumped 32.8 percent to $9.15. The Dow Jones life insurers' index <.DJUSIL> gained 6.3 percent.

On the tech front, Qualcomm was among the Nasdaq's biggest advancers, gaining 2.2 percent to $40.22, while International Business Machines , up 2.5 percent at $101.19, underpinned the Dow. Technology stocks have held up relatively well despite the market's drop to 12-year lows last month.

As you look across the broader equity marketplace, one of the things we are seeing is some people trying to really chase after the so-called earlier cycle names and it's been building as the days have gone on, said Craig Peckham, equity trading strategist at Jefferies & Company in New York.

Since hitting 12-year closing lows in early March, the broad S&P 500 is up nearly 22 percent after a month-long rally that was sparked by hopes that the economic slump is moderating and positive comments from some major banks.

Volume was modest on the New York Stock Exchange, where about 1.32 billion shares changed hands, below last year's average daily volume of 1.49 billion. On the Nasdaq, about 1.86 billion shares traded, below last year's average daily volume of 2.28 billion.

Advancers outnumbered decliners on the NYSE by a ratio of about 3 to 1, while on the Nasdaq, more than two stocks rose for every one that fell.

(Additional reporting by Edward Krudy; Editing by Jan Paschal)

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