Wall Street soars 11 percent on bank rescue and Morgan deal

NEW YORK (Reuters) - Wall Street roared back from its worst week ever with one of its best single days ever on Monday, as governments pledged to pour cash into struggling banks to restore confidence in a rocky global financial system.

Bargain-hunting investors scoured the wreckage from eight days of losses that had whacked more than 20 percent off the value of the benchmark S&P 500. Health care, utility and energy stocks rose the most in what was the first day of gains this month for the Dow and S&P 500.

Morgan Stanley drove the rally in financial shares, soaring 87 percent, after Mitsubishi UFJ Financial

Group completed its $9 billion investment in the U.S. bank as U.S. government support helped nail down a critical deal many investors had feared could fall apart. Wachovia climbed 13.6 percent after the Federal Reserve approved the $12.46 billion takeover of the U.S. bank by Wells Fargo & Co.

“The crucial issue for the market has been a lack of confidence and the most recent efforts to ease the credit crunch by governments and central banks have been very positive in terms of building confidence,” said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

Led by Britain, European governments agreed to multibillion-dollar guarantees for the banking system in moves that may become a crucial test of investor faith in government’s ability to reverse the downward spiral.

The U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank also said they would lend commercial banks as much U.S. dollar liquidity as they needed to ease clogged interbank lending rates. The S&P financial index shot up 10.23 percent.

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The Dow Jones industrial average rose 936.42 points, or 11.08 percent, to 9,387.61, its biggest one-day point gain ever and its biggest percentage gain since March 15, 1933.

The Standard & Poor’s 500 Index also notched its best single-day point gain, up 104.13 points, or 11.58 percent, to 1,003.35. The Nasdaq Composite Index was up 194.74 points, or 11.81 percent, at 1,844.25, its biggest one-day point gain since January 2001.

The Dow Jones Wilshire 5000 index, one of the broadest measures of U.S. stocks, posted its largest percentage gain ever, closing up 1,040.13 points, or 11.40 percent, to 10,160.63. The $1.2 trillion increase in value was the largest one-day gain ever.

General Motors jumped 33.1 percent to $6.51 after reports that the automaker has been in merger talks with rivals Chrysler LLC and Ford Motor Co, whose shares surged 20.1 percent to $2.39.

Defensive and consumer staples stocks rose as investors picked up shares in companies generally considered better positioned to weather an economic downturn. Johnson & Johnson rose 12.2 percent to $62.68.

Among tech shares, Apple Inc was up 13.9 percent at $110.26, after Citigroup raised its recommendation on the U.S. technology hardware and equipment sector to “market weight” from “underweight.” Microsoft gained 18.6 percent to $25.50.

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Energy companies tracked the price of oil higher. Crude oil gained $3.49, or 4.49 percent, to settle at $81.19 a barrel on optimism over the governments’ moves to shore up confidence in the banking system. Exxon Mobil gained 17.2 percent to $73.08, and Chevron climbed 20.9 percent to $69.89.

Morgan Stanley shares spiked 87 percent to $18.10, while those of Wachovia rose 13.6 percent to $5.85.

In a sign that credit markets may be loosening up, the cost for banks to borrow dollars, sterling and euros from each other over three months fell. [ID:nLD281678]. But the U.S. Treasury market was closed for the Columbus Day holiday.

“We’ve had a nice snapback rally in stocks today as we got that favorable piece of news about the investments in the banks,” said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.

“But these gains, this momentum, may not be sustainable. We’ll see what happens tomorrow when the bond market reopens.”

Trading was moderate on the New York Stock Exchange, with about 1.82 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.60 billion shares traded, above last year’s daily average of 2.17 billion.

Advancing stocks outnumbered declining ones by a ratio of 20 to 1 on the NYSE and by 7 to 1 on the Nasdaq.

Reporting by Kristina Cooke; Editing by Jan Paschal