Updated from 4:09 p.m. EST
U.S. stocks soared into the close Monday after the government announced an aid package for
and President-elect Barack Obama unveiled key members of his economic team.
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
surged 51.78 points, or 6.5%, to 851.81. The
gained 87.67 points, or 6.3%, at 1472.02.
Over the weekend, the Treasury, the
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
, 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.
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
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.
Speaking in Chicago, Obama on Monday confirmed earlier reports that he would nominate New York Federal Reserve chief
to run the Treasury Department and tap former Treasury Secretary Lawrence Summers to head the National Economic Council. Media reports of Geithner's nomination had on Friday coincided with a late-rally in the major averages.
Obama also announced Christina Romer would lead his Council of Economic Advisers and Melody Barnes would direct the Domestic Policy Council. Romer is an economist at the University of California at Berkeley, and Barnes is the former executive vice president for policy at the Center for American Progress.
In a separate speech in Washington, President Bush said that he and Obama are working together to develop additional policies to prevent further economic deterioration.
Sparks of Schaeffer's said that the Obama team's quick movement to put a team in place and develop a plan of action helps remove some uncertainty related to the presidential transition, but "the biggest uncertainty is how widespread, and how hard-hitting, will the aftermath of the crisis be."
Michael Strauss, chief economist and strategist at Commonfund, said that the current climate warrants aggressive fiscal and monetary policy, as well as initiatives that encourage trade to continue. He said that successful stimulus would probably require dedication by the government of about 2% to 4% of GDP. "At least we're taking some steps in the right direction," he said.
Financial institutions continued to feel shocks related to the credit crisis. News of the Obama plan came after three banks, including
, failed on Friday.
Pessimism about the future of other U.S. companies persisted, as
at Citigroup cut their price target for the S&P 500 to 850 and lowered their 2009 target for the index to 1200.
The market's recent upward movements are to be expected, given a broader downtrend, said Sparks of Schaeffer's. "I don't know if I would at this point call
the recent rally anything important or even significant."
The troubled automakers continued to make headlines, as
, which along with
took large hits last week as they failed to secure a bailout from Congress, is trying to reduce its debt and delay a large payment to a union health fund. The report indicated that such a move is an effort to meet conditions that the company retool its business if it hopes to get government money.
On Saturday, a report by
The Wall Street Journal
, citing people familiar with the matter, said that GM's board was now open to a possible bankruptcy filing. The board's reported position puts it in opposition to CEO Rick Wagoner, who has repeatedly stressed that he was not considering bankruptcy protection.
GM shares rose 17% to $3.59, and Ford added 9.1% to $1.56.
As to corporate earnings,
saw increasing fiscal first-quarter earnings per share but said a stronger dollar would hurt international sales. Shares dropped 7.6% to $33.52.
also affirmed that it has sufficient capital and offered profit guidance that was in line with analysts' expectations. The stock gained 18% to $6.17.
In the merger arena,
Johnson & Johnson
announced it would buy
for $438 million, or $25 a share, in cash. Johnson & Johnson edged up 1.3% to $59.11, and Omrix rocketed 17% to $24.79.
Among other deals,
agreed to be bought by
for $1.6 billion in cash. Alpharma shares gained 8% to $36.19, and King added 7.5% to $9.27.
completed its purchase of
, and Lilly shares gained 5.4% to $32.08.
Looking at the day's economic data,
October existing-home sales
from the National Association of Realtors came in at an annual rate of 4.98 million, down from 5.14 million in September and slightly below economists' forecasts.
Ian Shepherdson, chief U.S. economist for High Frequency economics, wrote in an email that the National Association of Retailers believes about 45% of home transactions are foreclosure-related. "The private market is still very weak indeed, and the next few months represent a severe test in the wake of the plunge in stocks and consumer confidence," he said.
Shifting to commodities, crude oil rose $4.57 to settle at $54.50. Gold gained $27.70 to close at $819.50 an ounce.
Longer-dated U.S. Treasury securities were falling in price. The 10-year was down 1-6/32, yielding 3.33%, and the 30-year was off 1-21/32 to yield 3.78%. The dollar was weakening against the euro and pound but rising vs. the yen.
Abroad, European exchanges logged huge gains. The FTSE in London was up 9.8%, and the DAX in Frankfurt rose more than 10%. In
, Japan's Nikkei was closed for a holiday. Hong Kong's Hang Seng index finished with losses.