STOCKS snapped back from steep losses as bonds rallied and interest rates fell after a surprisingly strong auction of new US Treasury debt.

On Wall Street, the Dow Jones industrial average, down more than 78 at one point and trading below 5,400 for the first time since early February, surged into positive territory by mid afternoon. The barometer of 30 big companies added 53.11 points to close at 5,474.06.

Broader blue chip measures jumped higher with the Dow, but the more speculative elements of the market rebounded less decisively and continued to fall.

The market rebounded with bonds after the afternoon auction of new 10 year Treasury notes met with surprisingly strong demand.

Tuesday's auction of three year notes drew a weak response as investors grew sceptical about whether there was enough demand for this week's flood of 46 billion in new US Bonds.