Stocks continue sharp rally on rescue plan hopes; Dow up 369
— -- Stocks soared for the second consecutive day Friday to close out one of the most tumultuous weeks in the 216-year history of Wall Street as investors scrambled back into the markets on faith that the unprecedented moves by the government will shore up the financial system.
The Dow Jones industrial average surged 368.75 points, or 3.4%, to close Friday at 11,388.44, adding to Thursday's 410-point advance, to bring the two-day gain to almost 780 points.
You would never have known it from the anxiety that gripped Wall Street and Washington, but stocks ended the week virtually unchanged, with the Dow Jones industrial average down 33.55 points for the week, or 0.3%.
Investors saw a massive loss Monday, a rebound on Tuesday, another large drop Wednesday, and the rally on Thursday and Friday. The Dow has logged moves of more than 400 points every day except Tuesday.
Broader stock indicators actually closed higher for the week. The Standard & Poor's 500 index rose 48.57, or 4.0%, to 1,255.08, and the Nasdaq composite index rose 74.80, or 3.4%, to 2,273.90.
For the week, the S&P 500 rose 0.3% and the Nasdaq added 0.6%.
The late week rally was spurred by investors hoping the plan to rescue the financial system by quarantining the bad loans would finally allow analysts to assess the size of the problem.
Treasury Secretary Henry Paulson, speaking about the rescue plan said a bold approach is needed to remove troubled assets from the books of financial firms. He offered few details, but said he would work on it through the weekend with congressional leaders.
Meanwhile, the Securities and Exchange Commission announced it was temporarily banning short selling 799 financial institutions' stocks. Short sellers, who bet on falling share prices by borrowing the shares and selling them, have been blamed as one factor for the rapidly declining value of bank and brokerage stocks.
"The relief is justified," says Alan Skrainka, strategist at Edward Jones. "This is really what everyone was waiting for. These assets are worth something. The federal government is the ultimate back stop."
The fact stocks are rallying so strongly is strong evidence the government's moves are reinstilling confidence and prompting investors to put their money back into the system, says Michael Holland of money management firm Holland & Co. "It's not what I think. It's what the markets are saying," he says.
All eyes, though, are on whether the moves will help calm the jittery credit markets. The panic-fueled rush on Treasuries subsided a bit, as the yield on the 10-year Treasury jumped 0.38 percentage points to 3.81%. And the CDR Counterparty Risk Index, a widely watched measure of how nervous investors are about the solvency of the nation's top banks and brokerages, eased.
That shows investors are dramatically less panicked about the health of the pillars of the financial system. The Financial Select SPDR exchange-traded fund, which tracks the financial stocks in the S&P 500, jumped more than 12%.
Investors aren't ready to say the bear market is over. "There's a tremendous amount of work yet to be done," says Charles Blood of Brown Bros. Harriman. "But at least the intention and outline for the process is laid out."
A plan to help the banking industry could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has stumbled to a virtual standstill in the wake of this week's bankruptcy of Lehman Brothers and the bailout of teetering insurer American International Group.
The government took other steps Friday to restore stability to the financial system. The Federal Reserve said it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to souring corporate debt.
The dollar rose against most other major currencies in Friday trading, while gold prices jumped. Light, sweet crude rose $6.67 to settle at $104.55 a barrel on the New York Mercantile Exchange.
While stocks rose broadly, the financial sector was one of the strongest gainers. The two remaining independent investment banks logged big advances as fears dissipated that they would be felled by cash shortages and toxic debt.
Goldman Sachs Group , jumped $21.80, or 20%, to $129.80, while Morgan Stanley jumped $4.66, or 21%, to $27.21.
Advancing issues outnumbered decliners by about 7 to 1 on the New York Stock Exchange, where volume came to a heavy 2.1 billion shares compared with 2.45 billion shares traded Thursday.
The Russell 2000 index of smaller companies rose 30.06, or 4.15%, to 753.74.
Overseas stock markets soared. Japan's Nikkei stock average jumped 3.8%, and Hong Kong's Hang Seng index surged 9.61%. In Europe, Britain's FTSE 100 jumped 8.84%, Germany's DAX index advanced 5.56%, and France's CAC-40 rose 9.27%.
Contributing: Associated Press