Wall Street Soars on Bank-Relief Measures

The major indices continue to rise as central banks across the globe were initiating policies to offer liquidity to banks and bolster lending markets.

Author:: Mike Taylor
Publish date:: Oct 13, 2008 12:12 PM EDT

Updated from 11:20 a.m. EDT

Stocks in the U.S. rocketed higher Monday, as governments worldwide initiated massive emergency aid packages for struggling banks.

The

Dow Jones Industrial Average

soared 514 points to 8965, and the

S&P 500

jumped 55 points to 955. The

Nasdaq

was better by 110 points at 1759.

During the previous week, the three major indices took a severe lashing as investors worried that stagnant credit markets weren't responding to curative efforts by the U.S. and other governments. The Dow and the S&P each dropped 18%, and the Nasdaq fell 15%.

The cost of borrowing appeared to relax slightly, as three-month dollar Libor fell 6.6 basis points to 4.75%. Overnight Libor rates were not assessed as U.S. bond markets were closed in observance of Columbus Day.

Over the weekend, central banks across the globe were initiating policies to offer liquidity to banks and bolster lending markets.

In the U.S., Interim Assistant Secretary for Financial Stability

Neel Kashkari

said Monday that the Treasury Department had enlisted law firm Simpson Thatcher to advise it on a plan to buy equity positions as a measure in its $700 billion relief package for financial firms.

The U.K. announced a plan to inject capital into three of its struggling banks.

Royal Bank of Scotland

(RBS) - Get Report

Lloyds

(LYG) - Get Report

and

HBOS

will get up to $63 billion in government support, the

U.K. government

said.

The leaders of European nations announced that they would engage in a coordinated bailout package for the 15-member Eurozone, and European central banks said they will provide dollar liquidity to banks as needed. France and Italy are expected to detail their own plans later Monday. Germany, meanwhile, was preparing to expand a bailout package for its banks to $680 billion.

Australia said it would guarantee all of its banks' deposits and international debt. The United Arab Emirates said it would guarantee its domestic bank deposits.

According to a report by

Bloomberg

Treasury Secretary Henry Paulson

was looking into a U.S. program to guarantee debt issued by domestic banks following the significant intervention by European governments.

The

Federal Reserve

said it would offer unlimited dollar funding to swap facilities with several European central banks to meet increasing demand.

Paulson has reportedly called an afternoon meeting with key U.S. banking chiefs. According to the

Journal

, the Treasury Secretary has invited Ken Lewis of

Bank of America

(BAC) - Get Report

, Jamie Dimon of

JPMorgan Chase

(JPM) - Get Report

, Lloyd Blankfein of

Goldman Sachs

(GS) - Get Report

, John Mack of

Morgan Stanley

(MS) - Get Report

and Vikram Pandit of

Citigroup

to meet at 3 p.m.

In company news, mergers and equity investments were dominating the headlines. Japanese bank

Mitsubishi UFJ

(MTU)

closed a deal with

Morgan Stanley

(MS) - Get Report

to buy a 21% stake in the U.S. bank holding company.

Meanwhile,

Banco Santander

( STD) said it may acquire all of troubled U.S. thrift

Sovereign Bancorp

( SOV).

The Fed said it had cleared the way for

Wells Fargo's

(WFC) - Get Report

purchase of

Wachovia

(WB) - Get Report

Outside the financials,

General Motors

(GM) - Get Report

was in discussions with

Cerberus Capital Management

to buy

Chrysler's

automotive operations, according to published reports. Cerberus owns an 80% stake in

Chrysler

In analyst actions, Goldman Sachs predicted that the S&P 500 would climb 11% to reach 1000 at the end of the year. There's a high probability of a rally, Goldman said, but the rebound would not mark the beginning of a new bull market.

Merrill Lynch also upgraded Royal Bank of Scotland and German bank

Commerzbank

to buy from neutral.

Barclays

(BCS) - Get Report

Credit Suisse

(CS) - Get Report

and

Allied Irish Bank

(AIB)

got bumped to neutral from underperform. Merrill said it revised its ratings on the banks based on valuation.

Among technology shares, Friedman Billings reduced price targets on a wide array of technology companies, including