Dow Soars 410 Points on Bad-Debt Relief Talk

Updated from 3:32 p.m. EDT

Stocks in New York surged into the close Thursday on late-day reports that the government may jump in to take on many of the securities at the core of the credit crisis.

The Dow Jones Industrial Average shot up 410.03 points, or 3.9%, to 11,019.69, and the S&P 500 rose 49.93 points, or 4.3%, at 1206.32. The Nasdaq climbed 100.25 points to 2199.10.

The sharp move to the upside accompanied a report from CNBC that Treasury Secretary Henry Paulson was in discussions to initiate a Resolution Trust-like solution to the credit crisis. Following the Savings and Loan crisis in the late 1980s, the government created the trust to manage mortgage-related assets owned by defunct banks.

Ahead of Thursday's session, more news emerged from the struggling financials space. Washington Mutual (WM Quote) hired Goldman Sachs (GS Quote) to help it prepare for a sale, while private equity firm TPG had helped clear the way for a merger by waiving an anti-dilution clause that would make WaMu pay for any dilution related to a capital raise or buyout. WaMu shares skyrocketed 48% to $2.99.

Meanwhile, The New York Times and other news outlets reported that Morgan Stanley (MS Quote) was in discussions to merge with Wachovia (WB Quote). The Government of Singapore Investment Corp. said it would take a stake in Morgan if approached, and CNBC reported that HSBC (HBC Quote) and China's CITIC Group were also interested. On Wednesday, Morgan Stanley and Goldman Sachs shares both faced pressure as investors wondered if any firm was safe on its own. Morgan Stanley climbed 3.7% to $21.55, and Wachovia jumped 59% to $14.50.