Possible plan to aid banks lifts Dow 410
NEW YORK » Wall Street rallied in a stunning late-session turnaround yesterday, shooting higher and hurtling the Dow Jones industrials up 400 points following a CNBC report that the federal government might create an entity to absorb banks' bad debt. The report also cooled investors' fervor for safe investments like government debt that were in demand for much of the day.
The report that Treasury Secretary Henry Paulson is considering the formation of a vehicle like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left previously solemn investors ebullient. Wall Street hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that already has taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.
"It's going to take a lot of the bad debt off the balance sheets of these companies," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, commenting on the possibilities of an entity akin to the RTC. It could alleviate many of the pressures causing the credit crisis, he said, and reopen moribund credit markets. But Fullman noted, "the devil's in the details."
"Bear markets are very sensitive to news. And on a scale of 1 to 10, this one is a 13," he said of the report.
The Dow soared 410.03, or 3.86 percent, to 11,019.69, surging 560 points from its low of the day, 10,459.44. It was the Dow's biggest percentage point gain since October 2002 but still leaves the index down about 400 for the week after routs Monday and Wednesday. The Standard & Poor's 500 index rose 50.12, or 4.33 percent, to 1,206.51, and the Nasdaq composite index advanced 100.25, or 4.78 percent, to 2,199.10.
The Russell 2000 index of smaller companies rose 47.30, or 6.99 percent, to 723.68.
The report of a broader government bailout proved more reassuring to investors than moves before Wall Street's opening bell yesterday by the Federal Reserve and other major central banks to inject as much as $180 billion into global money markets. The moves were an attempt to keep the credit crisis from worsening; the Fed added another $55 billion in overnight loans yesterday.
The yield on the 3-month T-bill was extremely low at 0.07 percent - up slightly from 0.02 percent late Wednesday but well below its yield of 1.60 percent just a week ago. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.53 percent from 3.42 percent late Wednesday.
Gold rose again yesterday, up $46.50 to $897 an ounce on the New York Mercantile Exchange after posting its largest ever one-day price jump Wednesday.
Light, sweet crude on the New York Mercantile Exchange rose 72 cents to settle at $97.88 a barrel.