Fed's latest move surged stocks more than 300 points

NEW YORK (AP) -- Wall Street rebounded sharply Tuesday after the Federal Reserve and other central banks said they will pump $200 billion into the financial markets to help ease the strain from the credit crisis. The Dow Jones industrials surged more than 300 points.
The program is part of a worldwide effort to help struggling banks and mortgage providers. The Fed -- acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank -- agreed to loan investment banks money in exchange for debt that includes slumping mortgage-backed securities.
The Fed's latest move was seen as a direct boost to struggling banks by avoiding having to dramatically slash interest rates when the central bank's policymaking Open Market Committee meets next week. Economists continued to be concerned about the unrelenting rise in oil prices and the dollar's weakness, which contribute to inflation -- and cutting rates only add to these pressures.
The market's reaction contrasts with its more skeptical view during the past few weeks about the central bank's ability to keep the economy out of a recession. However, this latest step was seen as a direct lifeline to investment banks -- which previously couldn't borrow in past Fed liquidity plans.
"The big problem has been the financials, and this helps supply money directly to the banks and may take some of the need for aggressive rate cutting off the table," said Peter Dunay, chief investment strategist at Meridian Equity Partners. "The Fed is basically going to take the bad loans off the banks' books, and the market seems to be loving that idea."
In late afternoon trading, the Dow shot up 333.05, or 2.84 percent, to 12,073.20. The index -- which lost more than 500 points in the last three sessions -- is still down about 2,000 points from its October 2007 record high.
Standard & Poor's 500 index rose 36.56, or 2.87 percent, to 1,309.93, while the Nasdaq composite index added 65.43, or 3.02 percent, to 2,234.77.
Government bond prices fell as stocks rallied. The yield on the 10-year Treasury note, which moves opposite its price, spiked to 3.59 percent from 3.46 percent late Monday.
Financial stocks were the biggest movers after the announcement, as many major investment banks dipped to yearly lows in recent days amid concerns about liquidity. The central bank's plan basically allows Wall Street's biggest institutions to put up troubled assets as collateral for loans, use the new capital to make money in the market, and then pay back the loan up to 28 days later.
Though eventually banks would be forced to take the troubled mortgage-backed debt back on their books, the plan still takes short-term pressure off them. Many of these banks will release first-quarter earnings reports next week.
Citigroup Inc. rose $1.42, or 7.2 percent, to $21.11, Washington Mutual Inc. rose $1.72, or 17 percent, to $11.76, and Bank of America Corp. rose $1.33, or 3.8 percent, to $36.64.