Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 400 points...
NEW YORK — Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 400 points after a report that the federal government might create an entity to absorb banks’ bad debt.
The Dow closed up 410.03 points, or 3.9 percent at 11,019.69, after having been down 150 points at midday. The gain reversed most of Wednesday’s 450-point decline.
Broader stock indicators also jumped.
The Standard & Poor’s 500 index rose 50.12, or 4.3 percent, to 1,206.51, and the Nasdaq composite index advanced 100.25, or 4.8 percent, to 2,199.10.
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Previously solemn investors were jubilant over the report Treasury Secretary Henry Paulson is considering creating a vehicle like the Resolution Trust Corp. (RTC) that emerged during the savings-and-loan crisis of the late 1980s and early 1990s.
Paulson said late Thursday the government is indeed crafting a plan to rescue banks from bad debts and that Federal Reserve Chairman Ben Bernanke briefed congressional leaders on the options they are considering.
Wall Street hopes a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns and Lehman Brothers.
“It’s going to take a lot of the bad debt off the balance sheets of these companies,” said Scott Fullman, director of derivatives-investment strategy for WJB Capital Group in New York, commenting on the possibilities of an entity akin to the RTC.
It could alleviate many of the pressures causing the credit crisis, he said, and reopen moribund credit markets. But Fullman added, “the devil’s in the details.”
“Bear markets are very sensitive to news. And on a scale of 1 to 10, this one is a 13,” he said of the report.
The early report of a broader government bailout proved more reassuring to investors than moves before Wall Street’s opening bell Thursday by the Federal Reserve and other major central banks to inject as much as $180 billion into global money markets.
Those moves were aimed at keeping the credit crisis from worsening; the Fed added another $55 billion in overnight loans Thursday.
But it was only the prospect of a more comprehensive vehicle to sweep up bad debt that emboldened investors.
Oil shot up early in the day, moving back above $100 as investors sought it as another haven. But crude fell back with the market’s realization that the financial turmoil will likely exacerbate the drop in demand that has taken oil down sharply from its July record of $147.27 a barrel.
Light, sweet crude on the Nymex rose 72 cents to settle at $97.88 a barrel.