Wall Street headed for a huge rally today after the U.S. government said it is creating a plan to rescue the nation's troubled banks from their souring debts.
If a plan is put in place to help the banking industry, it could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.
A plan has not yet been revealed, but the government made other big moves on Friday.
To help limit the freefall in financial stocks, the Securities and Exchange Commission announced early today it is temporarily banning the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against company stocks by borrowing its shares, selling them, and pocketing the difference when they fall.
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 the embattled financial industry.
Ahead of the market's open Friday, Dow Jones industrial futures rose 334, or 3.04 percent, to 11,319. Standard & Poor's 500 index futures surged 47.70, or 3.96 percent, to 1,250.90. Nasdaq 100 index futures rose 37.50, or 2.19 percent, to 1,746.00.
Overseas stock markets soared.
Japan's Nikkei stock average jumped 3.8 percent, and Hong Kong's Hang Seng index surged 9.61 percent. In Europe, Britain's FTSE 100 was up 7.54 percent, Germany's DAX index was up 4.58 percent, and France's CAC-40 was up 6.91 percent.
In early trading Friday, Treasury prices dropped. The yield on the 3-month Treasury bill — a safe investment to which investors have rushed — rose to 0.78 percent from 0.07 percent late Thursday. Yields move opposite price. The yield on the benchmark 10-year Treasury note shot up to 3.71 percent from 3.53 percent late Thursday.
On Thursday, the Fed and other major central banks around the world joined forces to inject as much as $180 billion into global money markets in an attempt to keep the credit crisis from worsening. But with worries swirling about the financial health of such major companies as as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley, the cash infusion was not enough to alleviate the tension on Wall Street.
An afternoon report, however, that the government was in the midst of crafting a plan to assume banks' bad debt led to a late-day surge in stocks. The Dow rose 410.03, or 3.86 percent, to 11,019.69, in the biggest percentage point gain since October 2002. The index is still down about 400 points for the week.
Wall Street's whipsaw week saw a massive loss Monday, a rebound on Tuesday, another drop Wednesday, and the rally on Thursday.