Market Dispatches

Market Dispatches3/11/2008 5:30 PM ET

Stocks soar after Fed acts

The major indexes rally after the Fed adds liquidity to the financial markets. Bear Stearns denies problems after the stock's plunge Monday. Google gets EU approval for its deal to buy DoubleClick.

By Charley Blaine and Elizabeth Strott

Wall Street finally found a reason for a huge rally today, after the Federal Reserve moved to pump $200 billion into the financial markets to help ease the strain from the credit crisis.

The Dow Jones Industrial Average shot up nearly 417 points, its biggest one-day point gain since July 24, 2002. The blue-chip index climbed 3.5% to 12,156 yet is still about 2,000 points below its October 2007 record high.

The Nasdaq Composite Index gained 86 points to 2,255, and the Standard & Poor's 500 Index added 47 points to 1,320.

The Fed's Open Market Committee also authorized increases in its commitment of dollars to the European Central Bank and the Swiss National Bank. The increases will be $10 billion and $2 billion, respectively. That action, too, is designed to combat pressures related to mortgage problems.

The Fed "is focused on getting the markets going," said John Silvia, chief economist at Wachovia, to Bloomberg News. "There is a lack of willingness to trade. They are continuing to focus on adding liquidity."

Shares of mortgage-related companies and banks led the rally. Fannie Mae (FNM, news, msgs), the largest U.S. mortgage finance company, advanced 11.1% to $22.00, and Citigroup (C, news, msgs), the largest bank, climbed 9.1% to $21.49. JPMorgan Chase (JPM, news, msgs) jumped $2.36, or 6.5%, to $38.84, and Merrill Lynch (MER, news, msgs) was up $2.76, or 6.4%, to $45.60.

Among home builders, shares of Centex (CTX, news, msgs) climbed $2.23, or 11.5%, to $21.67.

On the Nasdaq, shares of Apple (AAPL, news, msgs) rose $7.66, or 6.4%, to $127.35, leading gainers.

Volume was heavy on the New York Stock Exchange, where about 1.95 billion shares changed hands, above last year's estimated daily average of 1.9 billion shares. On the Nasdaq, about 2.45 billion shares traded, above last year's daily average of 2.17 billion.

Advancing shares outnumbered declining shares by a ratio of about 5-to-1 on the NYSE and almost 3-to-1 on the Nasdaq.

All about the Fed

It's been six months since the Federal Reserve started easing monetary policy. The S&P is down about 14% since the first interest-rate cut on Sept. 18, 2007, as of Monday's close.

The Fed has lowered its key interest rate to 3% from 5.25% since September. The central bank is expected to cut further at next week's Federal Open Market Committee meeting.

The Fed has lowered its key interest rate to 3% from 5.25% since September. The central bank is expected to cut further at next week's Federal Open Market Committee Meeting.

Some move by the Fed had been expected; rumors circulated on Monday that the Fed would lower interest rates in an intermeeting "emergency" move, although that did not happen.

There were a vast number of other ideas of how the Fed could help.

"As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest," Michael Feroli of JPMorgan told The Wall Street Journal. Two ideas have been circulating on Wall Street, Feroli said. To help credit markets, the Fed could directly purchase Fannie Mae's and Freddie Mac's debt, or the Fed could buy some of the companies' guaranteed mortgage-backed securities.

The Journal quoted a note to clients from David Ader, a U.S. government bond strategist at RBS Greenwich Capital.

"If there is a message in the madness, it's this: The market is looking elsewhere for a 'solution' to the broad mess that started in housing and will presumably end with housing albeit with some big victims along the way," Ader said in the note. "Meaning someone or something will have to buy mortgage-backed securities as a starter, to restore liquidity and confidence."

Sptizer effect?

Reports that Ne w York Gov. Eliot Spitzer allegedly had hired a prostitute were greeted with cheers on Wall Street.

During his eight years as New York's attorney general, Spitzer went after former New York Stock Exchange chief Dick Grasso, attacking Grasso's lucrative severance package, as well as former American International Group (AIG, news, msgs) CEO Maurice "Hank" Greenberg. Spitzer targeted financial analysts and executives in the mutual fund industry, as well, prior to becoming governor last year.

Video on MSN Money

Jim Jubak
Will the Fed bail out Wall Street?
Wall Street is hoping the Fed will cut rates another half a percentage point on March 18, and then again on April 30. The market expects additional cuts would drop interest rates to 1.75% by July. But it's not likely, says MSN Money's Jim Jubak, and it isn't the solution.

"We all have our own private hells," said Ken Langone, a co-founder of Home Depot (HD, news, msgs), a former NYSE board member and one of Spitzer's targets, to CNBC. "I hope his is hotter than anybody else's."

"Wall Street is singing, 'Ding, dong, the witch is dead,' but Spitzer set an expectation of better oversight by officials that will continue," said Nell Minow, a corporate-governance expert, to the Journal.

Continued: Google gets EU green light

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