Wall Street Rally Continues as Citi Gets a Bailout

Updated from 9:41 a.m. EST

U.S. stocks were soaring Monday, following an announcement that Citigroup (C Quote) had secured government aid that would help prevent a breakup of the enormous and troubled bank.

The Dow Jones Industrial Average was climbing 286 points to 8333, and the S&P 500 was adding 30 points to 830. The Nasdaq gained 54 points at 1438.

On Friday, stocks fluctuated sharply throughout the day before staging a late rally that coincided with reports that President-elect Barack Obama would select New York Federal Reserve chief Tim Geithner to run the Treasury Department. Reports also indicated Monday that former Treasury Secretary Lawrence Summers would head the National Economic Council.

Over the weekend, the Treasury, the Fed and the Federal Deposit Insurance Corp. announced they would move to prop up Citigroup in part by investing $20 billion of the $700 billion Troubled Asset Relief Program in Citi shares. The large stake follows an earlier $25 billion TARP investment from the government. The agencies also said they will guarantee against up to $306 billion in potential loan losses by the bank.

Shares of Citi had dropped 60% in the past week on concerns about its ability to survive the credit crunch intact and on Friday, Citi executives reportedly denied speculation that the bank would sell all or part of itself to raise capital. On Monday, the stock rebounded early, gaining more than 50% on the bailout news.

Government aid for Citi is reassuring in that it shows that the government is willing to help vital institutions stay afloat as the credit crisis continues, said Richard Sparks, senior equity analyst at Schaeffer's Investment Research. However, the need for intervention underscores challenges faced by other large institutions, he said.