TIM PARADIS
NEW YORK
Wall Street showed its relief Monday over the government’s plan to bail out Citigroup Inc. – a move it hopes will help address some of the uncertainty hounding the financial sector. Stocks jumped more than 3 percent, extending Friday’s big rally.
While the markets anticipated last week that some sort of rescue could occur, investors appeared emboldened by the U.S. government’s decision late Sunday to invest $20 billion in Citigroup and guarantee $306 billion in risky assets. The move by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. is only the latest effort this year to support a banking system troubled by bad debt and flagging confidence.
Besides implementing its $700 billion bailout plan for the overall financial industry, the government has bailed out insurance giant American International Group Inc. and taken over lenders Fannie Mae and Freddie Mac.
The market is also a little more optimistic because President-elect Obama is set to introduce his economic team on Monday and has called for another economic stimulus. His plan targets saving or creating 2.5 million jobs during the next two years. Any plan is expected to exceed the $175 billion Obama proposed during the campaign.
The moves by the government to again step in and help a troubled bank as well as perhaps the broader economy helped buoy investor sentiment. Still, investors remain cautious because the nation faces a difficult economy and the stock market likely will continue to see volatility.
In midmorning trading, the Dow Jones industrial average rose 317.00, or 3.94 percent, to 8,363.42.
Broader stock indicators also jumped. The Standard & Poor’s 500 index advanced 35.29, or 4.41 percent, to 835.32, and the Nasdaq composite index rose 60.83, or 4.39 percent, to 1,445.18.
The rise in stocks follows a rally Friday that saw the Dow industrials jump 494 points, or 6.5 percent. The other major indexes also rose sharply. Still, stocks ended the week with a loss after heavy selling Wednesday and Thursday.
Bond prices were mixed Monday as investors examined the government’s bailout plan for Citigroup. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.29 percent from 3.20 percent late Friday.
The Treasury bill market showed continuing high demand, a sign of investors’ caution. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.02 percent from 0.04 percent late Friday.
The dollar was mostly lower against other major currencies, while gold prices rose.
Wall Street shrugged off a larger-than-expected drop in sales of existing homes last month as investors instead focus on the government’s rescue for Citigroup. And while the housing numbers fell short of expectations, Wall Street expected sales would fall sharply after last month’s upheaval in the financial markets.
The National Association of Realtors says sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million in October. That’s down from 5.14 million in September.
Citi shares surged $2.61, or 69 percent, to $6.38 on word of the government’s injection of capital into the company.
Health care company Johnson & Johnson said Monday it would acquire Omrix Biopharmaceuticals Inc. for $438 million. The move is aimed at expanding J&J’s surgical product unit; J&J will pay $25 per share for the company, an 18 percent premium over Omrix’s close Friday of $21.16.
J&J rose 62 cents to $58.97, while Omrix rose $3.41, or 16 percent, to $24.57.
Overseas, in afternoon trading, Britain’s FTSE 100 jumped 5.32 percent, Germany’s DAX index rose 7.49 percent, and France’s CAC-40 rose 7.34 percent. Hong Kong’s Hang Seng index fell 1.59 percent; markets in Japan were closed for a holiday.
