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Wall Street Roars, Dow Jumps 936

The eight-day losing streak ends Monday after central banks and governments announced measures to bolster the global financial system

Following last week's brutal sell-off, U.S. stocks staged one of the biggest comebacks ever Monday as global central banks and governments moved over the weekend to shape a rescue plan for troubled banks and economies. Markets around the world also headed sharply higher.

"This, boys and girls, is what you call a relief rally in markets," wrote Paul Kedrosky in his blog Infectious Greed on Oct. 13. "There are some staggering numbers out there, especially from Germany, Hong Kong, and Brazil indices."

At the close Monday, the Dow Jones industrial average soared 936.42 points, or 11.08%, to 9,387.61 -- the biggest point gain ever. The S&P 500 index climbed 104.13 points, or 11.58%, to 1,003.35, boosted by shares of investment banking and brokerages and auto manufacturers. The Nasdaq composite index rose 194.74 points, or 11.81%, to 1,844.25.

Biggest Point Gains in the Dow
Date Close Net Chg. % Chg.
10/13/2008 9,387.61 936.42 11.08%
3/16/2000 10,630.60 499.19 4.93
7/24/2002 8,191.29 488.95 6.35
9/30/2008 10,850.66 485.21 4.68
7/29/2002 8,711.88 447.49 5.41
3/18/2008 12,392.66 420.41 3.51
3/11/2008 12,156.81 416.66 3.55
9/18/2008 11,019.69 410.03 3.86
4/5/2001 9,918.05 402.63 4.23
4/18/2001 10,615.83 399.10 3.91

European equity indexes also rose sharply, with Germany's DAX index and Paris' CAC index jumping more than 11% and London's FTSE-100 index rising 8%. Many stock markets in Asia also surged overnight.

"This sort of move was more or less inevitable after the sorts of downbound moves we've seen, so long as nothing imploded over the weekend," Kedrosky wrote. "It will give rise to non-stop cries of "the bottom is in", which I don't believe."

U.S. Treasury futures skidded on Monday, indicating bond yields were rising in reaction to the central bank movements that appear to have relieved panic that prevailed last week. The cash bond market, U.S. banks and government offices were closed Monday for the Columbus Day holiday.

The dollar index was lower as the euro and pound sterling rallied on central banks' moves to inject huge amounts of cash into their banking systems. Gold futures fell on hedge fund selling. Oil futures moved up on hopes banking efforts will revive global economies and boost demand.

Governments across the world launched multi-billion dollar bailouts to shore up global banks. Britain called for a new Bretton Woods agreement to reshape the world financial system, according to Reuters. The slew of bank bailouts worth hundreds of billions of dollars were designed to stave off the world's worst financial crisis in nearly 80 years, accompanied by declining global economic growth and the threat of widespread recession.

"Only by global action can we fully restore the confidence that is needed and build the international financial order," said British Prime Minister Gordon Brown. He called on world leaders to create a new "financial architecture" to reflect the global reach of economics and banking, in much the same way that the current international economic system was set up at a conference in Bretton Woods, New Hampshire, in 1944.

After meetings of the G-7 and International Monetary Fund in Washington this past weekend, Western financial leaders sought to assure panicky bankers and money managers in no uncertain terms that all of the measures needed to halt a worldwide meltdown are in motion.

While short on the details many market analysts had hoped for, the broad brushstrokes of forceful, coordinated action by Western governments were unveiled: No more Lehman Brothers-like failures of major financial institutions will be allowed. All bank deposits will be guaranteed. The banking systems of the G-7 nations will be flooded with almost unlimited liquidity. And if all that fails, any other tool—regardless of how economically unorthodox—will be used if needed.

Also, five central banks -- including the U.S. Federal Reserve and the European Central Bank -- unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.

According to a Wall Street Journal report, the Fed will begin providing unlimited dollar funding under its swap facilities with three major European central banks to ease strains in the financial markets. The European Central Bank, the Bank of England and the Swiss National Bank said in a joint statement that the terms of their respective currency swap arrangements with the Fed have been altered "to accommodate whatever quantity of U.S. dollar funding is demanded."

Treasury Secretary Henry Paulson called the top U.S. banking heads to a 3 p.m. meeting today in Washington. Most of the banking chiefs are in Washington for meetings of the World Bank and the International Monetary Fund. Invited to attend were banking executives including Ken Lewis, CEO of Bank of America (BAC), Jamie Dimon, CEO of J.P. Morgan Chase (WMI), Lloyd Blankfein, CEO of Goldman Sachs Group (GS); John Mack, CEO of Morgan Stanley (MS); and Vikram Pandit, CEO of Citigroup (C). While details of the meeting are unclear, Paulson is expected to discuss details of his new plan to take equity stakes in financial firms, among other points.

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, according to Bloomberg. "We are designing a standardized program to purchase equity in a broad array of financial institutions," Kashkari, who heads the department's Troubled Asset Relief Program, said in a speech in Washington. "The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions." The Treasury will "attack" bad debt clogging financial markets from "multiple directions," Kashkari said.

Three firms are finalists to be the Treasury's "master custodian," to be announced within 24 hours to serve as the program's prime contractor, Kashkari said. The Treasury has tapped law firm Simpson Thacher & Bartlett LLP and investment consultants Chicago-based Ennis Knupp & Associates for roles in the program. More selections are expected in coming days, he said. Kashkari said Fed Chairman Bernanke will lead TARP's oversight board.

"Washington has no choice but to go largely the same way that Europe and other countries already have -- substantial nationalization of the banking sector," wrote Donald Staszheim at Roth Capital in a note Monday.

In Paris, European leaders agreed to a unified plan that would inject billions of euros into their banks and guarantee bank debt for periods up to five years. President Nicolas Sarkozy of France, who led the talks, said governments would announce concrete rescue plans tailored to their national circumstances today simultaneously, the New York Times reported. Leaders of the 15 countries that use the euro did not put a price tag on any of their promises -- contrary to Britain, where last week Prime Minister Gordon Brown announced $255 billion in government funds and other measures to stabilize its banks, or the United States, where a $700 billion bailout plan will now be used partly to infuse banks with fresh capital.

The rescue measures in Europe echo those announced last week by the British government, which confirmed Monday that it is injecting a total of 37 billion pounds (US$63 billion) into three leading banks -- Royal Bank of Scotland PLC (RBS), Lloyds TSB PLC (LYG) and HBOS PLC -- in return for equity stakes. Taxpayers will own about 60% of RBS and 40 percent of the merged Lloyds TSB and HBOS. The merger has been renegotiated Monday too, so the amount of Lloyds TSB shares that HBOS shareholders will receive is lower.

Among stocks on the move Monday, Morgan Stanley (MS) shares jumped 87% to 18.10 after Mitsubishi UFJ Financial Group (MTU) closed a $9 billion investment in Morgan Stanley that gives the Japanese company a 21% interest. Under the revised terms, Mitsubishi UFJ has acquired $7.8 billion of convertible preferred stock with a 10% dividend and a conversion price of $25.25 a share, and $1.2 billion of non-convertible preferred stock with a 10% dividend. Previously, Mitsubishi UFJ was getting a mix of preferred and common shares. Morgan and Mitsubishi UFJ had worked Sunday to finish the pact, as both sides pushed to keep the general terms of the deal intact and the U.S. government signaled it was prepared to protect the Japanese investment, people familiar with the matter said. The U.S. government was involved with the talks but isn't contemplating a direct investment alongside Mitsubishi UFJ, one person familiar with the talks said.

General Motors (GM) shares rose 33% to 6.51 after the automaker's board gave a cool reception to the idea of acquiring Chrysler LLC after GM's top management discussed the matter at a meeting last week, reported the Wall Street Journal.

Waste Management (WMI) sees third quarter EPS of 62 cents on revenue of $3.53 billion. Adjusting for certain items, it sees EPS of 62-63 cents, noting the low end of the range, 62 cents, exceeds the Wall Street consensus estimate of 60 cents. Additionally, Waste Management said it is withdrawing its proposal to acquire all of the outstanding shares of Republic Services (RSG) for $37 per share, due to the current state of the financial markets.

Tesoro (TSO) said it expects third quarter EPS of $1.70-$1.90, which includes an approximately 29 cents after-tax last-in-first-out (LIFO) benefit. Tesoro also said Bruce Smith, its chairman, president and CEO, will file a Form 4 with the SEC reporting that Goldman Sachs (GS) sold 251,100 Tesoro shares owned by him. Tesoro notes the shares were sold in accordance with an existing margin agreement to meet a margin call. Depending on the direction of Tesoro's common stock price, further sales may be required.

Marshal & Illsley (MI) agreed to acquire a majority equity interest in Taplin, Canida & Habacht, a institutional fixed income money manger with $7.5 billion of assets under management as of Sept. 30, 2008.

Vishay Intertechnology (VSH) terminates its offer to acquire all of the outstanding shares of International Rectifier (IRF) for $23.00 per share in cash and will be returning tendered shares to their holders.

Abbott Laboratories (ABT) set up to a $5 billion share buyback. Separately, it announced that data from 30 patients in its ABSORB clinical trial demonstrated that ABT's bioabsorbable drug eluting stent successfully treated coronary artery disease and was absorbed into the walls of treated arteries within two years, leaving behind blood vessels that appeared to move and function similar to unstented arteries.

The board of General Motors (GM) board gave a cool reception to the idea of acquiring Chrysler LLC after GM's top management discussed the matter at a meeting last week, people familiar with the matter said, according to the Wall Street Journal.

Banco Santander (STD) issued a statement confirming it is in talks to acquire Sovereign Bancorp (SOV), but noted it is not currently possible to know whether such conversations will lead to an agreement or not.

Bernstein upgraded Apple Inc. (AAPL) to outperform from market perform.

Lear Corp. (LEA) lowered its 2008 sales outlook from $15 billion to about $14 billion, and now sees income before interest, other expense, income taxes, restructuring costs and other special items down about 20% from previous guidance of $500-$600 million. The company cited volatile industry and general economic conditions.

Limited Brands (LTD) set a $250 million stock buyback.

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