Stocks Boom on Bank Booster

The Fed promised a $200 billion booster shot for ailing markets and Wall Street answered with its biggest bounce in more than five
Hoping to ease the credit crisis, the Fed — acting with the European Central Bank, the Bank of Canada and the Swiss National Bank — agreed to loan investment banks money in exchange for debt, including slumping mortgage-backed securities.

Investors certainly seemed to like it: The Dow rose 416.66, or 3.6 percent, to 12,156.81. It was the biggest point jump in the Dow since a 447-point rise on July 29, 2002, and its widest one-day percentage gain since March 2003.

The Dow had lost more than 500 points in the past three sessions and is still down about 2,000 points from its October 2007 record high.

It was the S&P’s biggest point gain since April 5, 2001, and the Nasdaq’s biggest since May 8, 2002.

The latest step by the central banks was seen as a direct lifeline to investment banks, which previously couldn’t borrow beyond already established Fed liquidity plans.

The plan basically allows Wall Street’s biggest institutions to put up troubled assets as collateral for loans, use the new capital to make money in the market, and then pay back the loan up to 28 days later.

Though eventually banks would be forced to take the troubled mortgage-backed debt back on their books, the plan still takes short-term pressure off them. Many of these banks will release first-quarter earnings reports next week.

The Fed may have avoided dramatically slashing interest rates again when it meets next week. Economists remain concerned about the unrelenting rise in oil prices and the dollar’s weakness, which contribute to inflation — and cutting rates only adds to those pressures.

Financial sector stocks, many of which have dipped to multiyear lows in recent days on liquidity concerns, led the market higher Tuesday.

Gold prices rose, while the dollar edged up against most other major currencies.

The only sector posting major losses Tuesday was health care, which has been strong in recent months. WellPoint Inc. fell after Goldman Sachs trimmed its ratings in the managed care sector to neutral from attractive. The investment bank singled out WellPoint’s performance amid pricing pressures. The stock plunged $18.66, or 28 percent, to $47.26.

Google Inc. shares spiked after European Union regulators cleared the Internet company’s $3.1 billion bid for online ad tracker DoubleClick. Shares of Google rose $26.22, or 6.3 percent, to $439.84.

The Russell 2000 index of smaller companies rose 29.84, or 4.63 percent, to 673.81.

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