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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowWall Street is getting the good news it wants on the economy’s biggest problems: banks and housing.
Investors reignited a two-week rally today, cheering the government’s plan to help banks remove bad assets from their books as well as a report showing a surprising increase in home sales. Major stock indicators jumped more than 6 percent, including the Dow Jones industrial average, which soared nearly 500 points.
The Dow rose 497 points, closing at to 7,775.86.
The Standard & Poor’s 500 index rose 54 points, or 7.1 percent, to 823.13, crossing the psychological milepost of 800. The NASDAQ composite index rose 98 points, or 6.8 percent, to 1,555.77.
The Treasury Department’s bad asset cleanup program would tap money from the government’s $700 billion financial rescue fund and also involve help from the Federal Reserve, the Federal Deposit Insurance Corp. and the participation of private investors.
The government’s announcement was what the market had waited weeks to hear. Treasury Secretary Timothy Geithner had announced an outline of the program last month but provided few details then about how it would work, leading to a poor reception in the markets.
Meanwhile, the housing report released today was overwhelmingly positive for the markets even though it showed a decline in home prices in February.
Investors are embracing any sign that a glut in homes for sale may be easing.
The market had received another dose of housing good news last week on the troubled industry as housing starts for February came in much better than expected.
Collapsing home prices and the damage they have caused banks are at the center of the economy’s current problems and are a major focus for the stock market. Banks have sharply curbed lending after becoming weighed down with loans that have gone bad, especially mortgages.
Investors had been largely disappointed in the government’s efforts to date to restore the banks to health, but finally seemed encouraged by the long-awaited announcement today of details for the government’s bad loan cleanup plan.
“The actions that we’re getting from a policy standpoint are very helpful in removing the sand from the gears,” said Alan Gayle, senior investment strategist at RidgeWorth Investments. “That is going to be good for the financials.”
The plan seeks to draw in private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases. The government will share the risks if the assets fall further in price.
Shares of the country’s largest banks, which have been pounded in recent weeks over concerns about their ability to weather the crisis, soared today.
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