CLOSING MARKET REPORT
Extraordinary rescue effort spurs Wall Street rally

* Financial stocks lead on US plans to stabilise markets
* SEC imposes temporary ban on short sales
* US Treasury to back money market mutual funds
* Dow up 3.4%, S&P up 4%, Nasdaq up 3.4%

NEW YORK - Sweeping government measures to rescue the financial system and restore confidence in shaky markets spurred a huge relief rally in US stocks on Friday, ending a week when the financial landscape underwent the most dramatic reshaping since the Great Depression.

The benchmark S&P 500 index had its biggest two-day rally since October 21, 1987, two days after the 1987 stock market crash.

Led by US Treasury secretary Henry Paulson, officials are working on a solution to mop up hundreds of billions of dollars worth of bad mortgage debt.

In another extraordinary action, the United States joined the United Kingdom in temporarily banning bets that financial stocks will fall, while the Federal Reserve said it will use US$50 billion to back money-market mutual funds.

The moves came at the end of an agonizing week for Wall Street, in which Lehman Brothers filed for bankruptcy, insurer American International Group was bailed out by the government and Merrill Lynch was forced into a shotgun marriage with Bank of America. Investors had worried that the confluence of crises severely threatened the stability of the US economy.

But even with the furious two-day rally, stocks still ended essentially flat in a week marked by extreme volatility - with the Dow plummeting more than 500 points on Monday, only to rise on Tuesday and drop again on Wednesday.

An S&P index of financial stocks jumped 11.1 per cent.

Short sellers, who profit when stocks fall, have been blamed for contributing to the demise of Lehman Brothers and the steep declines in other financial stocks this year.

The Dow Jones industrial average closed up 368.75 points, or 3.35 per cent, at 11,388.44. The Standard & Poor's 500 Index advanced 48.56 points, or 4.03 per cent, to 1,255.07. The Nasdaq Composite Index shot up 74.80 points, or 3.40 per cent, to 2,273.90.

Shares of Washington Mutual surged 42.1 per cent to US$4.25 after the Wall Street Journal reported that Citigroup was considering making a bid for the US savings and loan.

Citigroup shares leaped 22.7 per cent to US$20.65 on the New York Stock Exchange (NYSE).

Shares of Morgan Stanley, punished earlier this week as investors fretted about the outlook for the last two remaining US investment banks, jumped 20.7 per cent to US$27.21. Shares of rival Goldman Sachs climbed 20.2 per cent to US$129.80.

Morgan Stanley's talks with Wachovia Corp, China Investment Corp and other institutions continue, a person familiar with the matter said, though the rebound in its securities gives the investment bank more time to consider its options. Wachovia's stock surged 29.3 per cent to US$18.75.

Trading was heavy on the NYSE, with about three billion shares changing hands, far above last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 3.8 billion shares traded, also trouncing last year's daily average of 2.17 billion.

Source: Singapore Business Times - 20 Sep 2008