US stocks soar over Citigroup rescue planNovember 25th, 2008 - 7:16 am ICT by IANS
Washington, Nov 25 (DPA) The US government’s decision to rescue banking giant Citigroup and the announcement of president-elect Barack Obama’s economic team sent stocks soaring Monday.The Dow Jones Industrial Average and the broader Standard and Poor’s 500 Index posted the biggest two-day rally since 1987. The Dow jumped 396.97 points, or 4.93 percent, to 8,443.39. The S&P 500 rose 51.78, or 6.47 percent, to 851.81. And the Nasdaq Composite Index climbed 87.67, or 6.33 percent, to 1,472.02.
Citigroup, which lost more than 60 percent of its value last week, bounced back 52 percent Monday after the government agreed to give it $20 billion from the $700-billion financial rescue plan, in exchange for stock with an 8 percent dividend to the Treasury Department.
“People went into the weekend very fearful about what could happen on the downside to Citigroup,” David Katz, chief investment officer of Matrix Asset Advisors, told Bloomberg TV. “The fact that the government and Citigroup came up with a very good resolution is very positive for Citigroup in particular, and for the financials overall.”
The US Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation said in a joint statement late Sunday that they would guarantee Citigroup against massive losses on its $306 billion in mortgage-related assets.
Referring to the Citigroup rescue plan, US President George W Bush said, after a meeting Monday with Treasury Secretary Henry Paulson: “We have made these kind of decisions in the past. We made one last night. And if need be, we’re going to make these kind of decisions to safeguard our financial system in the future.”
The markets were further encouraged with news from Chicago, where Obama unveiled the economic team that will attempt to steer the US away from a protracted recession, naming Timothy Geithner to head the US Treasury and Larry Summers as his top White House economic advisor.
Geithner, 47, currently the president of the Federal Reserve Bank of New York, will be tasked with rescuing the financial industry from its worst crisis since the Great Depression when the new administration takes over on Jan 20.
Summers, 53, will become director of the White House National Economic Council, making him Obama’s chief economic policy advisor. Summers is a respected economic voice who served as Treasury secretary in the latter years of former president Bill Clinton’s administration.
“We are facing an economic crisis of historic proportions,” Obama said. “We’ll need to bring together the best minds in America to guide us, and that is what I’ve sought to do in assembling my economic team. I’ve sought leaders who could offer both sound judgement and fresh thinking.”
Talks on a new fiscal stimulus package have stalled in the current Congress, but Obama has promised it will be a top priority when he enters office. He would not put a figure on the package, which some have estimated at $700 billion.