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NEW YORK: Wall Street stocks surged at the end of a nervous session on Thursday as battered markets drew encouragement from news about talks to set up a new government entity to rescue troubled financial firms.
The Dow Jones Industrial Average vaulted 410.03 points (3.86 percent) to close at 11,019.69 after an up-and-down session that saw blue chips down as much as 150 points.
The tech-heavy Nasdaq jumped 100.25 points (4.78 percent) to 2,199.10 and the Standard & Poor's 500 index rallied 50.12 points (4.33 percent) to 1,206.51.
The market opened higher as the world's top central banks announced a huge operation to boost the volume of dollars available to strangled money markets as global financial turmoil ripped deeper into confidence. The Federal Reserve agreed to inject 180 billion dollars as part of a global total of 300 billion dollars.
But markets sagged around midday as sentiment was hurt by fresh worries about key banking and brokerage firms, until a rally inspired by a report that Treasury Secretary Henry Paulson was mulling the creation of a new agency similar to the Resolution Trust Corp. used to bail out troubled savings and loans in the 1980s.
"It was was a huge roller-coaster say, I'm not sure I've ever seen such volatility," said Andy Brooks, head of trading at T. Rowe Price.
"Some companies had swings of 50 percent in one day and you haven't seen this even in the crash of 1987. It's nervousness, its misinformation."
Analysts at Briefing.com said the rally gained momentum after a CNBC report that "the government may be planning to solve the current financial turmoil using a method similar to the 1980s savings and loan crisis."
A move by British market regulators to ban short-selling - seen as a technique to punish troubled firms - lifted hopes that other markets may follow.
In a related matter, US Senator Charles Schumer proposed using "a different model from the Depression era" called the Reconstruction Finance Construction to stabilise the banking system.
A day earlier, global markets were roiled by an unprecedented rush to safe-haven assets including gold, oil and US Treasury bills.
The massive central bank action "should relieve some of the credit gridlock that froze the global banking system yesterday," said Fred Dickson, analyst at DA Davidson & Co.
"Although the situation in the capital markets and with global banks and investment banks remain fluid, it now appears that the worst of the 'perfect storm' is finally beginning to pass by. We should begin to see the stock prices of troubled institutions begin to settle down, or possibly rebound although we may see more announcements of takeovers in the next few days."
Brooks said short-selling was adding to pressure on key firms.
"If there is blood in the water, people are sensing they can push it down and they can make money, and that is perverse," he said.
The financial sector stocks remained in focus.
Morgan Stanley, one of the two remaining major Wall Street investment banks, plunged nearly 50 percent at one point but rebounded to end with a gain of 1.6 percent to 22.55 dollars.
The investment giant has been hammered on concerns it may need a merger partner after the collapse of Lehman Brothers and forced buyout of Merrill Lynch.
Washington Mutual, another bank on the brink, leapt 49 percent to 2.99 dollars on reports it was making progress finding a buyer.
Constellation Energy fell 2.3 percent to 24.20 dollars after it agreed to be acquired by Warren Buffett's MidAmerican Energy Holdings Company.
The bond market steadied after volatile action on Wednesday. The yield on the 10-year US Treasury bond increased to 3.437 percent from 3.410 percent on Wednesday and that on the 30-year bond rose to 4.113 percent against 4.081 percent. Bond yields and prices move in opposite directions. - AFP/de
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