Stocks soar at opening after government rescue plan
NEW YORK -- Wall Street extended a huge rally today as investors stormed back into the market, relieved that the government plans to rescue banks from billions of dollars in bad debt. The Dow Jones industrials rose more than 400 points, giving them a massive gain of more than 800 points over two days.
A new ban on short selling, or placing bets that a stock will fall, was likely adding to the market's gains. And Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility.
Treasury Secretary Henry Paulson will be speaking at 10 a.m. Eastern time about the rescue plan, which is expected to help alleviate the year-old credit crisis by removing soured real estate debt from financial institutions' books.
If a plan is put in place to help the banking industry, it could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.
The Federal Reserve said Friday it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to the embattled financial industry.
To help limit the freefall in financial stocks, the Securities and Exchange Commission announced it is temporarily banning the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against company stocks by borrowing its shares, selling them, and pocketing the difference when they fall.
"The federal government has been petitioned by Wall Street to take evasive action in the money markets, the stock and bond markets, to avoid a complete meltdown of the credit system," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co. "Once the credit system melts down, the economy falls. We can hand-ring about if this is the proper thing for the government to do, or if Wall Street pulled the panic button too soon, but that's something for the historians to sort out."
In the first minutes of trading, the Dow Jones industrial average rose 412.31, or 3.74 percent, to 11,432.00.
Broader stock indicators also surged. The Standard & Poor's 500 index rose 50.02, or 4.15 percent, to 1,256.53, and the Nasdaq composite index rose 85.82, or 3.90 percent, to 2,284.92.
