Following its worst week in 75 years, the US stock market posted some of the best gains in 75 years today, a trading day where bond markets were closed and the Treasury department announced that a deal to invest directly in banks is imminent. Per the terms of the TARP plan approved by Congress and the White House, Treasury has an initial $250b to use for any means necessary to help recapitalize banks and give them confidence to lend to each other and consumers again.
The market rally was also helped by Eurozone announcing similar bank rescues:
German Chancellor Angela Merkel presented a rescue package that will provide 400 billion euros ($543.4 billion) in bank guarantees and a further 100 billion euros in state funds to recapitalize banks.
French President Nicolas Sarkozy, who hosted a euro area summit with Britain on Sunday which agreed on the coordinated action, said France would create two funding vehicles with up to 320 billion euros to guarantee bank lending and 40 billion euros to provide capital to banks in need.
Britain, the strongest advocate of free-market capitalism in the EU, waded in with 37 billion pounds ($63.85 billion) of taxpayers’ cash to bail out three major banks, in a move that could make the government their main shareholder.
The governments of Spain and Austria announced similar emergency measures to shore up their banks and stabilize their financial system, and Italy pledged “as much as necessary” to help banks but gave no overall figure.
Rome said it would guarantee new bank bonds until Dec. 31, 2009 with a duration of up to five years and reduce the minimum collateral guarantee banks need to get a loan. The Bank of Italy will swap state bonds for bank debt of up to 40 billion euros.
Dutch news agency ANP later reported the Dutch government would also guarantee 200 billion euros in bank loans.
Dow: +936 Points, +11.08%, the highest point increase ever, following a previous record from March 2000 when it gained 499 points. This was the best percentage gain since 1933.
S&P 500: +104 Points, +11.58%.
Nasdaq: +195 Points, +11.85%.
Notably the S&P 500, a much broader index than the Dow, is still down 32 percent in 2008, poised for its worst yearly loss since 1937.