Oct. 13 (Bloomberg) -- U.S. equity futures gained after the worst week for stocks in 75 years, boosted by the government's plan to buy stakes in banks and a Federal Reserve official's pledge to ``consider every option'' for restoring confidence.

Morgan Stanley soared 24 percent and Merrill Lynch & Co. climbed 13 percent. The statement by Dallas Fed president Richard W. Fisher came as European leaders agreed to guarantee bank borrowing and use government money to prevent lenders from collapsing. Concern that frozen credit markets will spur a global recession sent the Standard & Poor's 500 Index last week to the lowest level since the start of the Iraq War and has erased about $28 trillion from equities worldwide in 2008.

S&P 500 futures expiring in December added 42.9, or 4.8 percent, to 933.9 at 8:30 a.m. in New York. Dow Jones Industrial Average futures rose 336, or 4 percent, to 8,706 and Nasdaq-100 Index futures advanced 52, or 4.1 percent, to 1,334.5. European and Asian stocks also rallied today.

``The measures that they've said they're going to take are important,'' said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``When we say stabilize the financial system, we're talking about money flowing, banks lending. That's what the market is waiting for.''

The S&P 500 slid 18 percent last week, the worst drop since 1933. The Dow average posted its steepest weekly decline since it expanded to 30 stocks in 1928, losing 1,874.19 points to 8,451.19. Benchmark indexes from London to Tokyo to Sao Paulo lost more than 20 percent as investors shrugged off an unprecedented coordinated effort by central banks led by the Fed to lower borrowing costs.

Year-End Rally

Goldman Sachs Group Inc. cut its forecast for the S&P 500 by 29 percent to 1,000, saying it is set for a potential ``strong'' year-end rally starting in late November, according to a note from equity strategists led by David Kostin.

Fisher warned yesterday the U.S. faces a period of negative growth and said the Fed will consider all policy options necessary to stabilize markets and limit damage to the economy. U.S. Treasury Secretary Henry Paulson indicated a day earlier that pumping government funds into banks is a priority.

``We can and we will restore order to the credit markets,'' Fisher said during a panel discussion sponsored by the Institute of International Finance in Washington. He didn't offer details on what options may be under consideration.

The Fed is facing increasing evidence that the U.S. is close to or already in a recession. Labor Department figures showed Oct. 3 that payrolls fell by 159,000 in September, the biggest drop in five years. The unemployment rate of 6.1 percent is up from 5 percent as recently as April.

European Bank Rescue

At a summit chaired by French President Nicolas Sarkozy, leaders of the 15 countries using the euro pledged to guarantee new bank debt issuance until the end of 2009; seek permission to shore up banks by buying preferred shares; and get commitments to recapitalize any ``systemically'' critical banks in distress.

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.

The S&P 500's eight-day losing streak is the longest since 1996. Last week's 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's trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.

Banks and Insurers

A gauge of banks and insurers in the S&P 500 sank 22 percent last week to the lowest since December 1996. Morgan Stanley plunged 60 percent to $9.68 as Moody's Investors Service said it may reduce the U.S. bank's credit rating on concern the financial crisis threatens earnings and investor confidence. Goldman Sachs dropped 31 percent to $88.80.

Morgan Stanley rose $2.32 to $12 today in trading before the open of U.S. exchanges, Merrill Lynch added $2.03 to $17.78 and Goldman Sachs rallied 6.3 percent to $94.40.

Morgan Stanley agreed to change the terms of its $9 billion investment from Mitsubishi UFJ Financial Group Inc., 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.

Oil, Copper

Exxon Mobil Corp. climbed 2.8 percent to $64.10 after a 20 percent tumble last week. Oil gained as much as 5.3 percent to $81.80 a barrel today, rebounding from a 13-month low.

Freeport-McMoRan Copper & Gold Inc. added 7 percent to $38.91 as copper on the London Metal Exchange rebounded from a 33-month low.

Credit and recession concerns overshadowed unprecedented coordinated interest-rate cuts by the world's largest banks last week. The Federal Reserve reduced its benchmark interest rate by 0.5 percentage point to 1.5 percent. The European Central Bank lowered its key lending rate by half a point to 3.75 percent.

The benchmark index for U.S. stock options surged 55 percent to 69.95 and closed at a record each day. 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 this week, almost triple the 22.39 average in its 18-year history.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.

Last Updated: October 13, 2008 08:31 EDT