Stocks Set to Open Higher on Bank Infusion

Updated from 6:59 a.m. EDT

Premarket futures were indicating stocks on Wall Street would continue their rally Tuesday, as the Treasury Department outlined a plan to invest some $250 billion in U.S. banks, with $125 billion earmarked for the nine largest.

Futures for the S&P 500 were up 39 points to 1055 and were 48 points ahead of fair value. Nasdaq futures were better by 35 points at 1494 and were 54 points above fair value.

On Monday, stocks snapped back from their eight-session October losing streak with massive gains. The Dow registered its largest-ever one-day point gain, rising 936 points, or 11%. The S&P 500 and the Nasdaq each jumped nearly 12%. The large gains came as central banks around the world collaborated on plans to inject capital into the global financial system.

Ahead of the new session, Treasury Secretary Henry Paulson said his agency would dedicate $250 billion of the $700 billion bailout package to buying equity positions in U.S. banks.

The government would buy preferred shares in Goldman Sachs ( GS), Morgan Stanley ( MS), JPMorgan Chase ( JPM) , Bank of America ( BAC), Merrill Lynch ( MER) , Citigroup ( C), Wells Fargo ( WFC), Bank of New York Mellon ( BK) and State Street ( STT), the Journal reported.

Speaking in Washington Tuesday morning, Treasury Secretary Henry Paulson said that he dislikes government ownership in U.S. financial firms but that the equity investment will help unfreeze liquidity markets and alleviate the crisis.

Action in the money markets suggested the international relief effort may have been gaining traction against the credit crunch. Bloomberg reported that three-month dollar Libor, a measure of the rate banks charge one another for large loans, declined 12 basis points to 4.64%. The overnight rate lost 29 basis points to 2.18%.

Goldman Sachs was undertaking some of its own maneuvers, seeking a New York state charter for its new banking subsidiary. Goldman, along with Morgan Stanley, became a bank holding company on Sept. 21. Many major commercial banks apply for charters from federal rather than state regulators.

Elsewhere in the financials, Hank Greenberg, former CEO of AIG ( AIG), was preparing a proposal to keep the company from being taken over by the government. AIG is rushing to pay back a bridge loan from the government to avoid being seized.

Spanish bank Banco Santander ( STD), meanwhile, confirmed it was expanding on its existing stake to buy the entirety of Sovereign Bancorp ( SOV) for $1.9 billion.

In the technology space, Internet concerns Yahoo! ( YHOO) and Google ( GOOG) were working with the Justice Department to try to stave off an antitrust case against a proposed ad-sharing deal between the two companies.

Meanwhile, Boeing ( BA) looked headed for trouble as negotiations with its machinist union broke down. Boeing's machinists have been on strike for five weeks.

As for corporate earnings, consumer-products developer Johnson & Johnson reported third-quarter earnings that rose year over year and topped estimates.

PepsiCo wasn't as rosy, announcing it would reduce its workforce and reporting falling profit.

In the realm of commodities, crude oil was gaining $3.41 to $84.60 a barrel. Gold was adding $5.50 to $848 an ounce.

Longer-dated U.S. Treasury securities were declining in price. The 10-year note was down 12/32, yielding 4.03%. The 30-year was losing 2-28/32 to yield 4.3%. The dollar was rallying vs. the yen but falling against the euro and pound.

Abroad, European indices including the FTSE in London and the DAX in Germany were trading higher. Looking at Asian markets , Japan's Nikkei closed 14.2% higher, a one-day record, and Hong Kong's Hang Seng closed with gains.

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