Stocks Rally on Citi Plans

Updated from 12:56 p.m. EST

U.S. stocks were soaring Monday after the government announced an aid package for Citigroup (C Quote) and President-elect Barack Obama unveiled key members of his economic team.

The Dow Jones Industrial Average was climbing 314 points to 8361, and the S&P 500 was adding 41 points to 841. The Nasdaq gained 63 points at 1447.

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, 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.

Investors were also heartened by the incoming administration's efforts to bolster the faltering economy. The transition team of President-elect Barack Obama said on Sunday it is working on an economic-stimulus plan to help avert the worst of an emerging downturn. Details include possibly allowing President Bush's tax plan to remain in place and legislation that would add or replace 2.5 million American jobs.