Wall Street roared higher on Friday as confidence was lifted by news of the US government's broad assault on the financial crisis, including a plan to save banks drowning in toxic mortgage debt.
A new ban on stock short sales to curb speculation and a Treasury plan to insure money market funds also helped calm nervous traders and ease the risk of financial meltdown.
Amid a powerful global equity rally, the Dow Jones Industrial Average jumped 368.75 points, or 3.4%, to close at 11,388.44.
The tech-heavy Nasdaq vaulted 74.80 points, or 3.4%, to 2273.90 and the broad Standard & Poor's 500 index lifted 48.57 points, or 4%, to 1255.08.
It was the second big rally for Wall Street in two days and came at the end of a tumultuous week for global markets that saw wild swings as the mood shifted from fear to euphoria.
Despite unprecedented volatility, the Dow ended the week with just a modest loss of 0.3%, while the Nasdaq and S&P posted modest weekly gains.
"Wall Street appears to have turned the corner,'' said Fred Dickson at DA Davidson, reacting to what he called "a package designed to attack the problems at the heart of the financial crisis and reduce the general level of fear that has move moved onto Main Street.''
Market action came as US authorities bolstered their arsenal to battle the financial market storm, readying a massive rescue plan worth hundreds of billions of dollars along with other emergency steps.
Treasury Secretary Henry Paulson said a rescue plan being drafted with the Federal Reserve and Congressional leaders to help purge bad assets from the banking sector will cost ``hundreds of billions'' of dollars.
As officials scrambled to draft legislation, US authorities offered fresh guarantees to stem a run on money market deposits and issued new emergency rules to curb short sales, seen as a factor in driving financial firms into ruin.
John Ryding at RDQ Economics said "the Treasury and the Fed have finally realised the depth and systemic nature of the crisis. We believe that these actions will constitute the wider firebreak that will contain the crisis.''
Chris Lafakis at Economy.com said the latest flurry of action "has significantly eased the concerns of skittish investors, who have been seeking shelter in the bond market in droves''.
He added: "The improved outlook for the US financial system is inspiring confidence that the US economy will not undergo a severe recession and that the Federal Reserve will not be forced to once again slash interest rates.''
Unsurprisingly, financial shares led the surge.
Morgan Stanley, which had complained about short sellers driving its shares lower, leapt 20.7% to $US27.21. Some reports said talks by the Wall Street investment bank on a merger were making progress.
Rival investment firm Goldman Sachs vaulted 20.2% to $US129.80.
Troubled savings and loan Washington Mutual jumped 42% to $US4.25 amid reports it was in talks on a tie-up with Citigroup, up 24% at $US20.65.
Joseph Hargett Schaeffer's Investment Research said some of the gains may have been fueled by the Securities and Exchange Commission's action to limit short sales on financial firms, forcing some traders to buy share ``to limit losses''.
"I wasn't prepared for the deluge of financial-related (covering) volume that is sweeping the Street this afternoon,'' he said.
Among other key shares, Oracle lifted 7% to $US20.07 after a better-than-expected quarterly earnings report from the business software giant.
Bonds fell as investors regained their risk appetite. The yield on the 10-year US Treasury bond increased to 3.769% from 3.437% yesterday and that on the 30-year bond rose to 4.366% against 4.113%. Bond yields and prices move in opposite directions.
AFP
