Updated from 4:09 p.m. EDT

Stocks in the U.S. followed the worst week in their history with an extraordinary rally Monday, as governments worldwide initiated massive emergency aid packages for struggling banks.

The global efforts resulted in an all-day rally in the three major indices, each of which climbed more than 11%. The

Dow Jones Industrial Average

soared 936.42 points, or 11.1%, to 9387.61. The

S&P 500

jumped 104.13 points, or 11.6%, to 1003.35. The


rocketed by 194.74 points, or 11.8%, at 1844.25.

The massive single-day gain in the Dow marks its largest ever in terms of a closing-point rally and its fifth largest one-day gain on a percentage basis. The record run came just 11 trading days after the index registered its largest single-day point decline, a 777-point loss on Sept. 29. The rally breaks an eight-day losing streak for the Dow, but the index remains down 13.5% for the month and 29% year to date.

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%.

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.

Image placeholder title

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

Royal Bank of Scotland

(RBS) - Get Royal Bank of Scotland Group plc Sponsored ADR Report



(LYG) - Get Lloyds Banking Group plc Sponsored ADR Report



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

U.K. government


Royal Bank of Scotland jumped 33% to $1.93. Lloyds slipped 2.6% to $12.17.

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 would provide dollar liquidity to banks as needed. The program, with participation from France, Germany, Spain, the Netherlands and Australia, amounts to a $1.8 trillion commitment to guarantee bank loans and buy equity positions in financial firms.

Meanwhile, the

Federal Reserve

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

According to a report by



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.

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


, the

Treasury Secretary

invited Ken Lewis of

Bank of America

(BAC) - Get Bank of America Corp Report

, Jamie Dimon of

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

, Lloyd Blankfein of

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

, John Mack of

Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

and Vikram Pandit of


(C) - Get Citigroup Inc. Report


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.

Officials are beginning to move with more urgency this week, Doreen Mogavero, CEO and president of Mogavero Lee, wrote in an email. She said she anticipates disappointments as companies report third-quarter earnings and lower guidance.

Image placeholder title

"I expect lots of volatility for a while and average volume ... barring news situations. I do feel better today than last week, and I think everyone does," wrote Mogavero. She said that although the global economy is on a road to recovery, there will still be bumps on the way.

After massive declines like the ones seen last week, traders are eventually going to jump in on the buy side to take advantage of lower prices, said Tony Dwyer, equity strategist at FTN Midwest Securities. He also said that the equity markets are hoping that actions by central banks are unfreezing credit markets. "Obviously it's working overseas," he said.

Whether stocks can continue rising depends on improvement in the U.S. Treasury bond markets, said Dwyer. "It's all about the credit market," he said.

TheStreet Recommends

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

Mitsubishi UFJ


closed a deal with

Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

to buy a 21% stake in the U.S. bank holding company. Shares of Morgan Stanley skyrocketed 85% to $17.92, while Mitsubishi climbed 15% to $7.68.


Banco Santander

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

Sovereign Bancorp

( SOV). Banco Santander tacked on 11% to $14.50, and Sovereign dropped 3.4% to $3.68.

The Fed said it had cleared the way for

Wells Fargo's

(WFC) - Get Wells Fargo & Company Report

purchase of


(WB) - Get Weibo Corp Sponsored ADR Class A Report

. Wells added 7.4% to $30.40. Wachovia was up 14% to $5.85.

Outside the financials,

General Motors

(GM) - Get General Motors Company (GM) Report

was in discussions with

Cerberus Capital Management

to buy


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


. GM shares climbed 33% to $6.51.

Image placeholder title

Waste Management

( WMI) announced it was backing away from its $6.73 billion bid to take over fellow trash hauler

Republic Services

(RSG) - Get Republic Services, Inc. Report

. Waste Management shares added 18% to $30.39, and Republic Services rose 8.9% to $24.50.

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


to buy from neutral.


(BCS) - Get Barclays PLC Sponsored ADR Report


Credit Suisse

(CS) - Get Credit Suisse Group AG Sponsored ADR Report


Allied Irish Bank


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


(MSFT) - Get Microsoft Corporation (MSFT) Report



( MFE) and

Adobe Systems

(ADBE) - Get Adobe Inc. Report


In terms of breadth, advancers beat decliners 16-to-1 on the

New York Stock Exchange

. On the Nasdaq, advancers outnumbered decliners 6-to-1.

As for commodities, crude oil settle $3.49 higher at $81.19 a barrel, and gold was lower by $16.50 at $838.50 an ounce.

The market for U.S. Treasury securities was closed. The dollar was falling substantially vs. the euro and pound but rising against the yen.

Europe's exchanges, such as the FTSE in London and the Dax in Frankfurt, were trading higher. In


, Hong Kong's Hang Seng gained 10%. Japan's Nikkei was closed for a holiday.