Oct. 13 (Bloomberg) -- U.S. stocks rallied, sending the Dow Jones Industrial Average to its biggest point gain ever, on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.
The Standard & Poor's 500 Index rebounded from its worst week in 75 years with its steepest advance since 1987, and the Dow climbed more than 700 points. Morgan Stanley soared as much as 90 percent after sealing a $9 billion investment from Japan's Mitsubishi UFJ Financial Group Inc. Bank of America Corp. and Citigroup Inc. jumped more than 8 percent, while General Motors Corp. and Ford Motor Co., the largest U.S. automakers, rose more than 20 percent each.
The S&P 500 added 82.4, or 9.2 percent, to 981.4 at 3:37 p.m. in New York. The Dow increased 716.75, or 8.5 percent, to 9,167.94, eclipsing its previous record 499-point gain in March 2000. The Nasdaq Composite Index advanced 147.37, or 8.9 percent, to 1,796.88. Eight stocks gained for each that fell on the New York Stock Exchange.
``You're seeing finally the magnitude of the response that's necessary to restore confidence,'' said Richard Campagna, chief investment officer at Provident Investment Counsel in Pasadena, California, which manages $1 billion. ``Off the kind of decline we had last week I would look for a 20 percent move off the low.''
The S&P 500 halted an eight-day losing streak, its longest since 1996. Last week's 18 percent declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended last week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
Europe's benchmark index posted its best gain ever, helping the MSCI World Index rebound from its worst week on record.
Global Plan
Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms, will be voluntary and have attractive terms to encourage participation. As part of the Fed-led plan, the European Central Bank, the Bank of England and the Swiss central bank will auction unlimited dollar funds. Previous swap arrangements between the Fed and other central banks were capped.
Citigroup, the biggest U.S. bank by assets, climbed 9.6 percent to $15.47. Bank of America, which is buying Merrill Lynch & Co., added 8.2 percent to $15.27. Merrill, the world's largest brokerage, climbed 5.4 percent to $16.60 and Goldman Sachs Group Inc. rallied 17 percent to $103.77.
Morgan Stanley
Morgan Stanley, an investment bank that last month turned itself into a bank holding company after investors lost confidence in firms that depend on the bond market for financing, rose $8.15 to $17.83 and gained as much as $8.67. Morgan Stanley agreed to change the terms of its $9 billion investment from Misubishi UFJ, providing the Japanese bank with preferred stock that pays a 10 percent dividend instead of common stock.
Mitsubishi UFJ, Japan's biggest lender, will get 21 percent of the New York-based company as previously agreed, the two firms said today in a joint statement. The terms were renegotiated after the tumble in Morgan Stanley's shares last week.
The collapse of New York-based Lehman Brothers Holdings Inc. on Sept. 15 precipitated the latest chapter of the 14- month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.
The Treasury Department will take equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago, Treasury Secretary Henry Paulson said over the weekend.
New Approach
``We're talking about making investments in these banks in a way that doesn't necessarily punish existing shareholders,'' Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $13 billion, said on Bloomberg Television. ``Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.''
Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc. resulted in near-total losses for the firms' shareholders.
The S&P 500 Financials Index added 4.2 percent today. The gauge of banks, insurers and investment firms sank 22 percent last week. Morgan Stanley plunged 60 percent last week as Moody's Investors Service said it may reduce the company's credit rating on concern the financial crisis threatens earnings and investor confidence. Goldman Sachs dropped 31 percent to $88.80 in the week.
Insurance Rebound
Insurance companies in the S&P 500, which slumped 28 percent last week as a group on concern the credit crisis will reduce the value of their investments, rebounded 10 percent today. Genworth Financial Inc. rallied 57 percent to $5.18 and Prudential Financial Inc. added 31 percent to $47.36.
Exxon Mobil Corp., the world's largest oil company, climbed 7.4 percent to $65.75 today after a 20 percent tumble last week. Crude oil gained as much as 6.2 percent to $82.52 a barrel today, rebounding from a 13-month low.
General Motors jumped 25 percent to $6.50, the biggest gain in the Dow average, and Ford added 21 percent to $2.40. GM, the largest U.S. automaker, is in talks with Cerberus Capital Management LP's Chrysler LLC about a merger or partnership, five people with direct knowledge of the discussions said. Ford, the second-largest, is considering selling its controlling stake in Japan's Mazda Motor Corp., a person familiar with the matter said.
Freeport-McMoRan Copper & Gold Inc. added 11 percent to $40.50 as copper on the London Metal Exchange rebounded from a 33-month low.
`Opportunity of a Generation'
Apple Inc. rose 7.6 percent to $104.18. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.
All 10 industry groups in the S&P 500 advanced at least 4.4 percent.
``This could be the buying opportunity of a generation,'' Kevin Divney, chief investment officer at Putnam Investments in Boston, said on Bloomberg Television. ``The real catalyst is the levels of valuation,'' which are lower now than they were at the beginning of the last bull market in 2003, Divney said. Putnam manages $137 billion.
Abbott Laboratories rose 7.3 percent to $53.04. The maker of drug-coated heart stents said it will spend as much as $5 billion to buy back shares.
VIX Retreats
The benchmark index for U.S. stock options declined 14 percent for its first drop in six days. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500. It averaged 59.43 last week, almost triple the 22.39 average in its 18-year history.
Goldman cut its forecast for the S&P 500 by 29 percent to 1,000, while saying the benchmark index is set for a potential ``strong'' year-end rally starting in late November, according to a note from strategists led by David Kostin.
Europe's Stoxx 600 advanced 9.9 percent, clawing back more than a third of last week's 22 percent slump.
Billionaire investor George Soros said the European agreement is a ``positive'' step that may help stabilize global financial markets.
``In the last 72 hours, I think the European governments got religion and realized that this is a serious problem,'' Soros said in Washington. ``People are looking for some leadership and finally they are getting it,'' suggesting there's ``a good chance'' the worst investor panic is over.
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