Bulls on Parade: Dow Industrials Soar 396 Points

Updated from 4:09 p.m. EST

U.S. stocks soared into the close 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, which had earlier climbed as much as 552 points, ended the day with a gain of 396.97 points, or 4.9%, at 8443.39. The S&P 500 surged 51.78 points, or 6.5%, to 851.81. The Nasdaq gained 87.67 points, or 6.3%, at 1472.02.

Over the weekend, the Treasury, the Federal Reserve 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 58% to $5.95 following the bailout news.

Much of the financial sector likewise participated in Citi's rally. The Financial Select Sector SPDR (XLF Quote), which tracks the financials, rocketed 17% to $11.32. The KBW Bank Index jumped 18% to 43.45.

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.