NEW YORK – The government's plan to bail out Citigroup sent Wall Street soaring Monday for the second straight session as investors hoped that the worst of the financial industry's problems might finally be over. The Dow Jones industrials surged nearly 400 points, and all the major indexes jumped more than 4.5 percent.
The rally gave the market its first two-day advance in three weeks and the Dow its biggest two-day percentage gain since October 1987, the month of the Black Monday crash.
The Dow's 891-point climb over the two sessions also wiped out the 872-point plunge it suffered on Wednesday and Thursday, when investors were anguished over the fate of Citigroup Inc. and financial companies in general, and the future of the nation's automakers.
Although investors sensed late last week that a rescue of Citigroup was forthcoming, they nonetheless were heartened, even emboldened, by the U.S. government's decision late Sunday to invest $20 billion in the company and guarantee $306 billion in risky assets.
Wall Street's enthusiasm grew not only because the bailout answered questions about Citigroup but also because many observers saw the move as offering a model for how the government might stabilize other banks.
"The government has taken a new quill out," said Scott Bleier, founder of market advisory service CreateCapital.com. "They've gone to where they didn't go before in terms of trying to secure the system. Some of that vulnerability seems to be gone now."
Still, the market remained wary, especially with the economy in a serious downturn. The Dow was up more than 500 points in the last hour before giving up some of its gains. Many investors wanted to take some money off the table before any bad news arrived. And the market has frequently done sharp reversals since the start of the credit crisis 15 months ago.
The efforts by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. to help stabilize Citigroup are only the latest this year to support a banking system troubled by bad debt and flagging confidence.
"You're definitely seeing relief," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. "More than anything, the Fed repaired some of the psychological damage that was being done to the sector. I think the Fed is poised to do whatever they possibly can to help the financials get through the current turmoil."
"Not all banks are unhealthy, so knowing that the Fed is there is enough," Conroy said.
The Dow rose 396.97, or 4.93 percent, to 8,443.39. Its last two-day advance was Oct. 30 and 31, along with the rest of the market.
Broader stock indicators also jumped. The Standard & Poor's 500 index advanced 51.78, or 6.47 percent, to 851.81, and the Nasdaq composite index rose 87.67, or 6.33 percent, to 1,472.02.
The Russell 2000 index of smaller companies rose 30.25, or 7.44 percent, to 436.79.
Over the course of Friday and Monday, the Dow rose 11.8 percent, while the broader S&P 500 index jumped 13.2 percent. The Nasdaq rose 11.9 percent. Paper gains in U.S. stocks over the two sessions came to $1.2 trillion, according to the Dow Jones Wilshire 5000 Composite Index, which reflects nearly all stocks traded in America.
"I think it's a little bit of confidence coming back into the system right now," said Harry Clark, chief executive of Clark Capital Management. He contends the market began to form a bottom after an eight-day selloff that ended Oct. 10, and on Thursday made further headway toward setting a low that could give way to a rally.
Bond prices were mixed Monday as investors examined the government's bailout plan for Citigroup. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.33 percent from 3.20 percent late Friday.
The Treasury bill market showed continuing high demand, a sign of investors' caution. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.01 percent from 0.04 percent late Friday.
The dollar was mostly lower against other major currencies, while gold prices rose.
Light, sweet crude rose $4.61 to $54.54 on the New York Mercantile Exchange.
Stocks briefly came off their highs of the session in the middle of the session, with the Dow paring its gain from 300 points to 200 points, as President-elect Obama formally named his economic team.
But Obama didn't offer specifics of an economic-stimulus package nor state that he would push back a plan to raise taxes on the richest Americans. He reiterated his goal of creating 2.5 million jobs during the next two years.
Alan Lancz, director at investment research group LanczGlobal, said that while the market might have wanted a firmer commitment against raising taxes, it was too soon for Obama to outline specifics. Lancz expects the new administration wouldn't rush to implement the hikes if the economy appeared too weak.
"There's so many balls in the air right now he'd be foolish to make specific comments," Lancz said, noting that the economic picture could change greatly by Inauguration Day, which is Jan. 20.
Wall Street shrugged off a larger-than-expected drop in sales of existing homes last month as investors instead focus on the government's plans for the financial sector. The housing numbers fell short of expectations, but investors expected sales would fall sharply after last month's upheaval in the financial markets.
The National Association of Realtors said sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million in October. That's down from 5.14 million in September.
The financial sector led Monday's advance, fueled by a sense that the government might be developing a more nuanced yet ready-to-apply remedy for financial firms. Citi surged $2.18, or 58 percent, to $5.95. Bank of America rose $3.12, or 27 percent, to $14.59. JPMorgan Chase & Co. rose $4.86, or 21 percent, to $27.58.
Advancing issues outnumbered decliners by about 7 to 1 on the New York Stock Exchange, where volume came to 7.65 billion shares, compared with 9.27 billion on Friday.
Overseas, Britain's FTSE 100 jumped 9.84 percent, Germany's DAX index surged 10.34 percent, and France's CAC-40 rose 10.09 percent. Hong Kong's Hang Seng index fell 1.59 percent; markets in Japan were closed for a holiday.
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