Dow Surges Nearly 500 Points

Stocks jump after Treasury Secretary Tim Geithner releases details of the plan to save the banks. Frank Curzio discusses the day in The Real Story.
Publish date:

Updated from 4:12 p.m. EDT

The major indices in New York rocketed 6.8% or more Monday, with financials in the forefront, after Treasury Secretary Tim Geithner released the long-anticipated details of the next step in the plan to restore the health of the bank sector.


Dow Jones Industrial Average

rose 497.48 points, or 6.8%, to 7775.86, and the

S&P 500

added 54.38 points, or 7.1%, to 822.92. The


gained 98.50 points, or 6.8%, to 1555.77.

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Last week marked the first two-week gain since last spring, although the advance was modest. As the new week arrived, the banks picked back up and led the ascent. Dow components

Bank of America

(BAC) - Get Report



(C) - Get Report

added 26% and 19%, respectively.

JPMorgan Chase

(JPM) - Get Report

was up 25% at $28.86.

The move to the upside came after the government described a


that will use $75 billion to $100 billion in TARP capital, along with capital from private investors, to generate $500 billion, and possibly $1 trillion over time, to buy hard-to-trade and badly deteriorated assets from banks.

"This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly," according to the

plan briefing

, dubbed the Public-Private Investment Program. "Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience."

The Wall Street Journal

reported some of the details of the plan over the weekend, and as a result, investors weren't completely surprised by the proposals, said Michael James, managing director at Wedbush Morgan Securities.

But despite the warm reception, there are still more details that need to be known, he says. He expects some hesitance to get involved on the part of the private investors "given all of the negativity from Washington last week" on taxing bonuses of those involved in government aid programs, among other things.

"They're encouraging you to play on their team, but are penalizing those who've already received money. It's sort of a mixed message, and I think it will create some reluctance," James says. "There are still more details to be considered before we can get too optimistic, but clearly we're on a path in the right direction."

One thing the plan already did was entice a nice rally today, says Peter Cardillo, chief market economist at Avalon Partners. "Obviously the market needs assurance that the financial system will be working again. News like today is quite encouraging."

Banks are still struggling on a global basis. Japan's biggest bank by assets,

Mitsubishi UFJ Financial Group


said it plans to slash 1,000 jobs and close about 50 branches of its core unit over the next three years. Shares were up 12.6% at $5.56.

Other than the financial sector, the housing market has also been closely monitored as a barometer for the recession. The National Association of Realtors reported that existing home sales in the U.S. crept up to 4.72 million in February from 4.49 million in January, surpassing the consensus of 4.45 million. Months of supply stayed the same at 9.7, while average sales price increased slightly to $165,400 from $164,800.

"Most of the economic data this week might in fact be on the positive side, and if that happens, this rally could continue," says Cardillo.

Back in corporate news, Dow component

General Electric

(GE) - Get Report

moved up 9.3% to $10.43 after Moody's

cut its rating

but maintained a "stable" outlook. Earlier this month, Standard & Poor's also cut GE's rating, only to have the stock rise on a stable outlook assessment, as well.

Fellow Dow component

General Motors (GM) - Get Report bondholders

are less than pleased with an outstanding offer to convert two-thirds of $27 billion in company debt to stock. Advisers to the bondholders said in a letter to the Obama administration that they are, however, open to other options.


(F) - Get Report

said Monday its debtholders have welcomed its effort to redeem debt early. The automaker said it will double the offer for

senior secured loan debt

to $1 billion and will purchase $2.2 billion of term loan debt after its original offer was oversubscribed.

General Motors shares added 5.4% to $3.35, while Ford added 5.5% to $2.90.



(TIF) - Get Report

said its

profit fell

75% from a year earlier, as the company suffered a pretax charge from an early retirement program and staffing cuts. Factoring out charges, it beat estimates, despite a 20% decline in sales, but it also gave a 2009 forecast below the consensus view. Investors seemed pleased, though, as shares rose 15.5% to $23.37.

"The first quarter is coming to an end, and you want to see how bad the downside preannouncements are and how many companies provide materially negative guidance," says Wedbush Morgan's James. Those preannouncements will probably start to occur this week, he says.

"But people have become more tolerant of negative commentary coming from companies than they were three months ago. There's a greater ability to absorb negative news," James says.

Longer-dated Treasuries were dropping. The 10-year note was falling 8/32 to yield 2.7%, while the 30-year was down 19/32, yielding 3.7%.

Checking in on commodities, oil tacked on $1.73 to settle at $53.80 a barrel, while gold fell $3.70 to $952.50 an ounce.

The dollar, which came under pressure last week after the

Federal Reserve

announced it would inject new funds into the economy, was stronger against the yen, but weaker against the pound and euro.

Stocks in Europe were largely higher, with the FTSE 100 and the Dax adding just over 1.9% apiece. But Hong Kong's Hang Seng and Tokyo's Nikkei lost 0.3% and 2.2%, respectively.