Stocks Soar 11 Percent on Aid to Banks

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By MICHAEL M. GRYNBAUM

On Monday, for the first time this October, the Dow Jones industrial average ended the day higher than it began. Nine hundred and thirty-six points higher, to be exact, making for the biggest single-day percentage gain in 75 years.

The surge came as governments and central banks around the world mounted an aggressive, coordinated campaign to unlock the global flow of credit, an effort that investors said they had been waiting for.

Some experts greeted the rally as a turning point in the slow-motion crash that has erased five years worth of value from the stock market in the last few weeks. When Monday began, shares of some blue-chip companies were at their cheapest levels in years.

“The market clearly was getting priced for an Armageddon, a depression, for the end of Western civilization as we know it,” said Edward Yardeni, the investment strategist. “A lot of people realized these were extraordinarily good prices to buy stocks.”

But others warned that the problems at the center of the current crisis, including a global credit squeeze and worsening economic conditions, were far from solved, and could set the stage for more volatility in markets.

Reeling from the worst week in stocks since 1933, officials announced over the weekend that they would flood the financial system with billions of dollars in liquidity and provide capital for troubled banks, throwing out the traditional financial playbook in favor of a series of moves that officials hoped would get banks lending again.

Relief poured through the markets. The 11.6 percent gain in the broad Standard & Poor’s 500-stock index was that gauge’s best single-day gain since 1939. Stocks in Paris and Frankfurt had their best single-day gains ever, rising more than 11 percent. The Dow Jones industrial average, which closed at 9,387.61, up 11.1 percent, is now back to its level on Thursday. Only four times in its history has the Dow risen more percentage points in a day. Those gains came in 1929, 1931, 1932, and 1933.

But trading volume was lighter than last week, meaning fewer investors jumped in to buy than were selling last week. Portions of the credit markets — which remained locked tight before the weekend — were closed for the Columbus Day holiday, so investors may have had trouble gauging the reaction among banks and big lenders to the new global initiatives. Some analysts said that stock investors held off on their trades to see how the credit markets would react.

“If the credit markets open up tomorrow and you can’t see money flowing where it’s supposed to flow, you imagine that this whole thing reverses itself quite dramatically,” said Randy Cass, chief executive of First Coverage, a firm that collects and analyzes investment advice offered by brokerage firms.

Investors may also be eager to pocket their profits from Monday’s gains, which could send stocks lower when the markets reopen Tuesday.

There were signs on Monday, however, that the coordinated government efforts had started to make some headway in loosening the flow of credit. The cost to insure the debt of several major corporations fell significantly, a sign that investors were more confident about the health of the nation’s big banks and businesses.

The seeds of the rally began on Sunday afternoon, after more than a dozen European countries — including Britain, France, Germany and Spain — announced aggressive plans to guarantee loans, take ownership stakes in banks, or prop up ailing companies with billions in taxpayer funds.

“There’s a mixture of surprise and relief, certainly in Europe, as to the scale of the measures that have been announced since the weekend,” said Mark Cliffe, chief economist of ING Group. “There was considerable nervousness, to say the least, that the Europeans wouldn’t come through with a concerted effort, and essentially they have.”

The Treasury Department followed suit on Monday after Wall Street closed, unveiling similar plans to take stakes in troubled companies and provide blanket insurance for deposits.

The rescue efforts spurred rallies in stock markets around the world. At midday on Tuesday, the Hang Seng index in Hong Kong was up nearly 4 percent and the Australian S.& P./ASX 200 index in Sydney had gained more than 3 percent. The Nikkei in Tokyo, which was closed Monday for a national holiday, had soared more than 13 percent at midday.

At 2 a.m. Monday in New York, one hour before the start of trading in Europe, the Fed issued a statement saying it would make billions of dollars available to banks in coordination with the Bank of England, the European Central Bank and the Swiss National Bank. It was the latest unprecedented move by the central bank: effectively a pledge to “provide unlimited liquidity to the world’s banking system,” as Mr. Yardeni put it.

Stocks in Europe surged higher at the open by more than 5 percent. Shares of BNP Paribas, Deutsche Bank, and Royal Bank of Scotland — among other major European banks — rallied.

Just after 8 a.m. came another cause for relief. Morgan Stanley, the embattled Wall Street bank, announced that it had closed on a $9 billion financing deal with a large Japanese bank, the Mitsubishi UFJ Financial Group. The deal had been closely watched for weeks by investors who considered it a critical gauge of confidence in the global banking system. Its completion was considered so important to financial markets that officials from the Treasury Department and the Japanese government joined in talks between the companies.

The agreement also restored confidence in the health of Morgan Stanley, sending the company’s shares up 87 percent, to close at $18.10. Morgan Stanley was the best-performing stock in the S.& P. 500 on Monday.

As investors received word on their BlackBerrys of the success by Morgan Stanley, their eyes were glued to television sets where a speech by Neel T. Kashkari, the assistant Treasury secretary for the government’s rescue plan for Wall Street banks, was being broadcast. Mr. Kashkari appeared in Washington to present the first glimpse at the plan’s inner workings and its personnel. He pledged that the government would begin injecting money into banks almost immediately.

The stage was set for a huge rally. The Dow zoomed nearly 400 points higher two minutes after the opening bell as shares of nearly every type of business surged. Stocks surged further after reports that Henry M. Paulson Jr., the Treasury secretary, would meet in the afternoon with the chiefs of the nation’s top banks, a signal to investors that a new round of government aid was on its way.

The gains were led by shares of energy companies, which received a boost from a $3.49 rise in the price of oil, to $81.19 a barrel. Telecommunications companies also moved higher as did banks. Goldman Sachs gained 25 percent, to $111; Bank of America rose 9.2 percent, to $22.79; and Citigroup gained 11.6 percent, to $15.75.