The Dow Jones Industrial Average rose 936.42 points on Monday.
WASHINGTON — Wall Street roared back from last week's devastating losses on Monday, sending the Dow Jones industrials soaring a nearly inconceivable 936 points, as the Bush administration rushed to revamp the largest U.S. bailout plan in history.
Stocks skyrocketed not only in the United States but around the world in response to dramatic efforts here and overseas, and the possibility of even bolder American action, including purchases of bank stocks by the federal government.
The rally began in Asia, spread to Europe and then caught fire when Wall Street rocketed higher.
After eight days of bloodletting that drained nearly 2,400 points off the Dow and wiped out about $2.4 trillion in shareholder wealth, the U.S. blue chip index rose 936.42, or 11.08 percent, to 9,387.61, its biggest one-day point gain in history. Few expected this kind of advance, which saw the Dow by far outstrip its previous record one-day point gain, 499.19, set during the waning days of the dot-com boom.
The massive rebound also pushed the Standard and Poor's 500 up 11.5 percent, or 104 points, its biggest point gain ever. The Nasdaq composite index climbed 195 points, or nearly 12 percent, its second-biggest gain in percentage terms.
Cheers and applause broke out on the floor of the New York Stock Exchange at the closing bell, and trading was so active that prices were still being computed several minutes after the closing bell, longer than it would take on a quieter day.
Still, while the magnitude of the gains stunned investors and analysts, few were ready to say Wall Street had reached a bottom. The market is likely to have back-and-forth trading in the coming days and weeks, and may well see a pullback when trading resumes today, as investors work through their concerns about the banking sector, the stagnant credit markets and the overall economy.
The rebound in stocks came as the Bush administration worked with executives of the nation's biggest banks to shift and shape new pieces and get credit flowing.
Scrambling to catch up with events, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and the bankers were modeling many parts of their revamped program after strong initiatives in Europe, where governments put $2.3 trillion on the line Monday in guarantees and other emergency measures to save their banks.
Elements being considered for the overhauled U.S. program included not only the details for purchasing banks' bad assets, the major feature of the $700 billion bailout bill that sped through Congress, but also direct government purchases of stock in banks.
A financial industry official said the administration will use perhaps as much as $250 billion of the rescue funds recently passed by Congress for stock purchases, providing the banks with badly needed money. The official, who spoke with knowledge of a Treasury Department meeting Monday, commented only on the condition of anonymity because the details of the plan have yet to be released.
Another initiative under consideration: providing government guarantees for the short-term loans banks make to each other, a vital credit avenue that has come under severe stress as fears have mounted over the hundreds of billions of dollars of losses that began with the meltdown of the subprime mortgage market in the United States more than a year ago.
"These are tough times for our economies, yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis," President Bush said after a meeting with Italian Premier Silvio Berlusconi at the White House.
Over the weekend, Paulson had called the heads of the five biggest U.S. banks to Washington for face-to-face talks about the rescue plan, according to people briefed on the matter.
Democrats in Congress, while supportive of Paulson's desire to expand the program, complained that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that have now helped push the U.S. financial system to the brink.
The government should purchase stock only in financial firms that agree to cut dividends paid to shareholders, adhere to strict limits on executive compensation and curb use of exotic investment strategies, Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, said Monday.
As for Europe, governments there said they were putting $2.3 trillion on the line, based on pledges from Britain, Germany, France, Spain, Austria and Portugal in recent days. To assist the European banks, the Federal Reserve said Monday that it was taking actions to assure enough U.S. dollars were available to meet demand.
"The government cannot just leave people on their own to be buffeted about," said British Prime Minister Gordon Brown.
The U.S. bailout bill was passed by Congress on Oct. 3. In the past 10 days, the administration has hurried to get it implemented even as officials have struggled to nail down the broad outlines of how the package will work.
The administration on Monday announced the selection of a team of interim managers, picked an outside firm to help run the program and selected a New York law firm to draw up guidelines for how the stock purchase program will work. Officials also announced that Bernanke had agreed to serve as chairman of the oversight board Congress mandated.
On Wall Street, investors returned to the stock market with gusto, with some saying stocks had been driven down to fire-sale prices.
John Lynch, chief market analyst for Evergreen Investments in Charlotte, said Monday's rally was encouraging but he doubted it signaled the worst has passed. He pointed to ongoing strains in the credit markets and the bleak outlook for corporate earnings for 2009.
"My screen is completely green and I love that, but I'm not doing any back flips yet," he said. "We still have many challenges up ahead."
Denis Amato, chief investment officer at Ancora Advisors, said it's too soon to say whether the market has started to carve out a bottom and that the credit markets where many companies turn for day-to-day loans will need to loosen for stocks to hold their gains. With the U.S. bond markets and banks closed Monday for Columbus Day, it was difficult for investors to gauge the reaction of the credit markets to actions by major governments.
Amato said the severity of the selling last week was one possible signal that the market might be nearing a bottom and that the stepped up intervention of the government is a welcome sign for the markets.
"I think we had enough negatives last week that if the government steps in we could have a pretty nice run. Is it off to the races? No, I don't think so. We have a lot of stuff to work through," he said.
