US stocks surge on report of Geithner nomination

NEW YORK: Wall Street staged a comeback Friday, with the major indexes jumping more than five percent and the Dow Jones industrials surging nearly 500 points.

The late afternoon rally ended another volatile week that saw stocks reach six-year lows.

Stocks erased about half of the steep losses from Wednesday and Thursday, as investors got an unexpected jolt of confidence following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.

Investors have been looking for a clear message from Obama on who will lead his economic brain trust at a time when the country is facing its biggest financial crisis since the Great Depression.

In addition, some on Wall Street have grown frustrated with outgoing Treasury Secretary Henry Paulson over his handling of the government's effort to rescue the banking system.

"Something needed to be done on the economy,'' said Ben Halliburton, chief investment officer at Tradition Capital Management.

"The fact that they've got the team together, maybe that is going to shorten the period of indecision.''

A senior Democratic official familiar with the deliberations confirmed to The Associated Press that Geithner is likely to be named as Treasury secretary.

The official requested anonymity because the nomination hasn't been formally announced.

The advance in stocks also came as the FDIC said it would guarantee up to $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan.

The directors of the Federal Deposit Insurance Corp. voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.

Stocks fluctuated throughout most of trading Friday, as fresh concerns over the stability of the financial sector prevented the market from establishing any sustainable gains.

But stocks moved sharply higher in the final half hour after the report on Geithner.

The Dow rose 494.13 points, or 6.54 percent, to settle at 8,046.42.

The Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03.

The Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.

The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 2.37 billion shares.

With the steep pullbacks earlier this week, the Dow began Friday's session down 43.1 percent this year, while the S&P 500 index - a benchmark for the overall U.S. stock market - was down 48.8 percent.

The Nasdaq composite index had lost 50.4 percent this year.

And despite Friday's gains, stocks are still down sharply for the week.

The Dow has lost 5.31 percent, while the S&P 500 fell 8.39 percent and the Nasdaq lost 8.74 percent.

Paper losses for the week in U.S. stocks came to $1 trillion, according to the Dow Jones Wilshire 5000 Composite Index, which reflects nearly all stocks traded in America.

In the two previous days, the Dow had lost a staggering 873 points, more than 10 percent of its value, and the broader Standard & Poor's 500 index had sunk to its lowest level since 1997.

Still, Friday's rally sets up the potential for more gains going forward, analysts said. "I think we're clearly set up for some sort of relief rally,'' Halliburton said.

"People have been holding their breath for a relief rally for weeks. Unfortunately, most of the rallies have been short-lived.''

But while the cloud of uncertainty surrounding Obama's economic team has been removed, there are still plenty of unknowns facing the market.

As a result, volatility will remain a major force on Wall Street for some time to come, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

He said worries about marquee companies from General Motors Corp. to Citigroup Inc. are unnerving investors.

"What we're seeing is these symbols of American business history really suffering and prompting investors to call into question the viability of the system,'' Ablin said, referring to the functioning of the broader economy.

Investors have grown increasingly anxious this week that losses from souring debt will swamp banks, even those given financial support through the government's $700 billion rescue plan.

Citigroup, in particular, is a concern for Wall Street because the company hasn't booked a profit in the past four quarters.

As the banking giant's shares slid below $4, analysts said Friday it may be forced to merge or sell some of its prized businesses.

Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.

Investors have also worried about the fate of GM, Ford Motor Co. and Chrysler LLC.

The heads of the companies, warning that automakers are perilously low on cash, have been asking Washington for $25 billion in loans.

But lawmakers have likely put off a vote on whether to extend a lifeline until next month and have asked the automakers for detailed plans about how they would use the money.

The prospect of a bankruptcy filing by one or more of the companies has added to Wall Street's worries about the state of the economy.

Bond prices fell Friday as credit markets eased somewhat following a freeze-up Thursday.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.19 percent from 3.00 percent late Thursday.

The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent late Thursday.

Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange.

The dollar fell against other major currencies, while gold prices rose.

Japan's Nikkei stock average jumped 2.70 percent.

In European trading, Britain's FTSE 100 fell 2.43 percent, while Germany's DAX index fell 2.20 percent, and France's CAC-40 fell 3.33 percent.