U.S. Markets Surge As Credit Starts to Thaw

Fed's Debt-Buying Program Gaining Traction

Stocks skyrocketed nearly 11 percent yesterday in the second-biggest point gain ever for the Dow Jones industrial average, buoyed by signs of improving credit conditions and expectations that the Federal Reserve would slash a key interest rate today.

Investors were cheered by reports that the Fed was making progress in unlocking corporate debt markets through its program to buy commercial paper, or loans used for everyday operations, and by developments at major blue-chip companies Boeing and General Motors.

GM chairman and chief executive G. Richard Wagoner Jr. was in Washington over recent days negotiating with Treasury officials for government money to help finance a proposed merger with Chrysler, said an industry source briefed on the matter.

But analysts and investors warned that continuing global economic uncertainty could send the stock market tumbling again in coming days. They also said low trading volume made them cautious about declaring the market had turned a corner. Moreover, stocks often rally the day before the Fed's policymaking committee meets and then lose some of those gains soon thereafter.

"Is this a real bottom? I'd be more convinced if there were more volume behind trading," said Alan Lancz, president of Alan B. Lancz & Associates, an investment firm in Toledo.

The Dow closed up 889.35 points, to 9065.12, second only to Oct. 13, when the average rose 936.42 points. The Standard & Poor's 500-stock index rose 91.59, or 10.8 percent, to 940.51. The tech-heavy Nasdaq composite index jumped 143.57, or 9.5 percent, to 1649.47. The rally spread to Asian markets today, with stocks in Japan rising more than 6 percent in early trading.

Investors who had been on the sidelines while heavy trading by hedge and mutual funds made for a volatile market in recent days were lured yesterday to buy the shares of companies with strong balance sheets now trading at sharply lower prices.

This heightened demand followed signs that the credit squeeze crippling companies was thawing. According to Fed data, sales of longer-term commercial paper soared tenfold after the central bank began buying the corporate loans on Monday. Companies on Monday sold 1,511 issues of debt maturing in more than 80 days, representing a record $67.1 billion compared to a daily average of 340 issues valued at $6.7 billion last week.

"At long last, there were tangible signs that the credit market was easing and government programs were beginning to work," said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. "This is the basis of confidence and the underpinning of the economy."

Still, some companies continue to face extremely tough borrowing conditions despite the Fed's action on commercial paper, which is typically used to make payroll and buy supplies. The Fed is buying commercial paper only of top-grade companies, leaving others searching for ways to finance day-to-day operations.

Companies that drew down lines of credit at banks are starting to look for ways to raise new money. As credit conditions ease, there could be a long line of firms trying to sell bonds, and that could keep borrowing costs high.

"The commercial paper market from our point of view is closed," said Anthony Kamerick, vice president and treasurer at Pepco Holdings. "So what that does is require us to borrow from our banks as a temporary measure." Pepco Holdings has announced plans to sell $750 million of bonds for three subsidiaries.