After Government Actions, Stocks Regain Most of Last Week's Losses

Stocks surged yesterday as investors cheered a government bailout of Citigroup, one of the country's largest banks, and a proposed economic stimulus package that could total nearly $700 billion.

Government regulators' effort to bolster Citigroup and President-elect Barack Obama's proposed stimulus package helped calm concerns about the stability of the financial sector and prospects for the troubled economy.

The Dow Jones industrial average climbed 4.9 percent, or 396.97 points, to 8443.39, while the Standard & Poor's 500-stock index surged 6.5 percent, or 51.78 points, to 851.81. The tech-heavy Nasdaq composite index was up 6.3 percent, or 87.67 points, to 1472.02.

Stocks have now nearly erased all of last week's losses. Including Friday's rebound, the Dow and S&P have staged the largest two-day rally, on a percentage basis, since 1987.

The broad-based rebound was led by the financial sector, which surged after government regulators announced a plan to protect Citigroup against potential losses from a $306 billion pool of troubled assets and invest an additional $20 billion in the company.

After its stock price fell more than 60 percent last week, Citigroup roared back yesterday, gaining 57.8 percent to $5.95 a share. Bank of America and J.P. Morgan were up 27.2 percent and 21.4 percent, respectively.

Overall, the S&P's financial sector was up 18 percent yesterday, its best performance since the index was created in 1989. "Before you celebrate, the sector remains down 60 percent" this year, said Howard Silverblatt, senior index analyst for Standard & Poor's.

Investors were also buoyed by Obama's plan to save or create 2.5 million jobs over the next two years. Leading Democrats have said the package could cost up to $700 billion, significantly more than had previously been contemplated.

The rally could amount to a short reprieve from the market's turbulence, analysts said. The Citigroup bailout is just the latest of several government efforts to stabilize the financial sector, they said, and the economic downturn is expected to worsen this year.

"I hope this lasts, but I wouldn't hang my hat on it," said Win Thin, senior currency strategist for New York-based Brown Brothers Harriman & Co.

Despite the rally, investors continue to seek safety from the turmoil. The yield on a three-month government bond fell to 0.01 percent, down from 0.04 percent on Friday. That indicates that investors are willing to earn little for their investment in exchange for the security of government bonds. The price of gold was up 3.5 percent to $819.40 an ounce. Facing increasing demand, the U.S. Mint said yesterday that it had depleted its inventory of many gold coins and will have to delay the launch of other bullions.

Meanwhile, the housing sector, the root of much of the financial crisis, continues to suffer. The sale of existing homes, including townhouses and condos, fell 3.1 percent last month to a seasonally adjusted rate of 4.98 million units compared with September. Median home prices fell 11.3 percent to $183,000 compared with October 2007, the largest year-over-year drop on record dating back to 1968, according to the National Association of Realtors

Home prices across the country are being driven down by a spike in foreclosures, which now make up more than 40 percent of the market, analysts have said. Those homes often sell at a discount and create competition for homeowners trying to sell.

Crude oil prices surged 9.2 percent to $54.50 a barrel on the New York Mercantile Exchange. Prices fell below $50 last week for the first time in nearly two years, prompting analysts to predict they could slide to $35 to $45 a barrel by the end of the year.