U.S. Stock Market Welcomes Bailout Plan; Indexes Off Early Highs
NEW YORK (MarketWatch) -- U.S. stock indexes rocketed higher Friday, with the major stock indexes wiping out a week of shattering losses, as Wall Street cheered the government's effort to unfreeze credit markets as well as plans to move against short sellers.
The major stock indexes climbed above the level at which they stood before the start of the watershed week, which saw the Dow Jones Industrial Average lose about 800 points in the first three days of trading.
But at least one analyst questioned whether the weekly gain would remain intact at the end of the day.
"Panic buyers, most likely the shorts, were wiling to pay any price and they sure did," said Elliot Spar, option-market strategist at Stifel Nicolaus & Co., describing the burst higher, especially among financial shares.
"If details of the grand plan are revealed over the weekend, it may create a sell on the news on Monday morning. I suggest traders with big profits from yesterday lighten up before the close," said Spar.
Up more than 400 points early on, the Dow industrials was recently up 336.76 points at 11,356.45, with 24 of its 30 components in the green.
American International Group Inc. was flying 56.5% higher, with major shareholders of the giant insurer said to be pursing a bid to pay off the federal government's loan to AIG in time to avoid the government taking an 80% stake in the company, the Wall Street Journal said in an online report.
Citigroup Inc. also bolstered the Dow, up 23.7%, followed by Bank of America Corp. , recently ahead 17.7%.
Financials rallied off the Dow as well, with shares of Lehman Brothers Holdings Inc. , climbing 16 cents, or 303.9%, to 21 cents a share.
Shares of Goldman Sachs Group rose 17.2% and Morgan Stanley gained 20.2%.
Dow component General Motors Corp. , which has exposure to troubled mortgage assets through its partly held GMAC arm, jumped 12.2%. According to a report in the Nikkei newspaper, the automaker is in talks to sell its commercial-truck operations to Isuzu.
The S&P 500 Index gained 37.97 points to 1,244.48, while the Nasdaq Composite Index jumped 46.97 points to 2,246.07.
All of the S&P's 10 industry groups advanced, with the financial and energy sectors leading the charge, the former up 11.7% and the latter gaining 7%.
"Just like a child wishing for a Wii or an Xbox on Christmas Day, the market was hoping for some sort of RTC [Resolution Trust Corp.] type of arrangement, and there it was underneath the Christmas tree," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
"It was the booster shot that the market was looking for," he added. "This was what we needed to happen, to remove those assets dwindling on balance sheets. And the short-sale rule, for the sector that it's targeting, will also help near term."
Volume on the New York Stock Exchange topped 2 billion, with advancers beating decliners roughly 5 to 1. On the Nasdaq, nearly 1.6 billion shares traded, and for every stock on the decline, three advanced.
Fed factor
The rally came as President Bush and other administration officials outlined a plan to rescue the struggling financial system at a cost of "hundreds of billions of dollars."
Issuing an emergency order early in the day, the U.S. Securities and Exchange Commission temporarily banned short selling in the shares of nearly 800 financial firms. .
The SEC move may well be prompting pleas from financial-services companies left off the list, including General Electric Co. , American Express Co. and Capital One Financial Corp., all of which have large businesses in the financial sector.
On the New York Mercantile Exchange, gold futures plunged the most in more than 25 years, with the spot month closing down $32.30 at $864.70 an ounce.
The price of oil gained, with crude futures recently up $6.67 to end at $104.55 a barrel.
Treasury prices plunged, sending yields on benchmark notes up the most in two decades. .
Overseas, Chinese stocks in Shanghai and Hong Kong surged more than 9% .
European shares surged to their best one-day percentage gain ever, with the Pan-European Dow Jones Stoxx 600 climbing 8.3%.
Emerging-market stocks around the globe also rallied.
On Thursday, U.S. stocks surged in anticipation of the government rescue plan, with the Dow adding 410 points.
By Kate Gibson