S&P 500 up 6.5% on Obama's stimulus plan, Citigroup rescue

The battered stock market completed its biggest two-day gain since 1987 on Monday as Wall Street backed the government's plan to rescue banking giant Citigroup and was reassured by President-elect Barack Obama that swift passage of a big economic stimulus package was the top priority of his newly formed and highly respected economic team.

Offsetting the gloom caused by a sell-off last week that drove stock prices back to 1997 levels, the Standard & Poor's 500 rallied 6.5% Monday to 852, upping its two-session gain to 13.2%, its biggest in 21 years. It was stocks' first back-to-back gain since Oct. 30-31. The index is down 42% this year and 45.6% below its October 2007 peak.

Stocks had hit deeply oversold levels because of a fast-sinking economy, fears about the solvency of the banking system and a leadership vacuum in Washington pending Obama's inauguration. But investor confidence got a jolt from Obama's selection of a seasoned economics team and relief that the financial system would avoid further instability if Citigroup failed. Investors abhor uncertainty and view Obama's proactive steps as a sign of clarity.

"The fact Obama has assembled a serious, centrist economic team is a positive," says David Kelly, chief market strategist at JPMorgan Funds. "More important is that Obama's team is confronting the problems facing the economy and banking sector before Inauguration Day."

The Dow, 40.4% below its peak, rose 397 points to 8443, capping a two-session 891-point rise. Some analysts questioned whether the gains would last. The rally came despite more bad economic news, including a larger-than-expected drop in sales of existing homes last month.

In a news conference, Obama said the "economy is likely to get worse before it gets better." But he stressed that his team would "hit the ground running" and that he envisioned a stimulus package big enough to "jolt the economy back into shape."

Obama tapped New York Federal Reserve President Timothy Geithner to be his Treasury secretary and Lawrence Summers to serve as director of his National Economic Council. Summers led the Treasury Department under President Clinton.

Wall Street lauded the picks.

"Geithner is a good choice," says Nicholas Sargen, chief investment officer at Fort Washington Advisors. "He is already involved in the financial rescue and doesn't need on-the-job training. And Larry Summers is a proven crisis fighter."

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