Stocks Rally on Stimulus Hopes

Major indexes finished with strong gains Monday amid news that President-elect Obama promised the largest U.S. economic stimulus plan in 50 years

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U.S. stocks closed sharply higher Monday as President-elect Barack Obama's weekend announcement of the largest U.S. economic stimulus plan in 50 years. The plan, centered around a major planned infrastructure investment, led investors to buy a range of issues, from machinery makers to materials producers. Monday's stock market rally extended steep gains from Friday.

Also Monday, General Motors (GM) and Ford Motor Co. (F) rallied on media reports that Detroit automakers; were nearing a deal to obtain about $15 billion in federal aid.

Bonds were lower, as was the dollar index. Gold futures surged on news of the proposed Obama stimulus plan. Oil futures were sharply higher.

On Monday, the Dow Jones industrial average finished higher by 298.76 points, or 3.46%, at 8,934.18. The broad S&P 500 index rose 33.63 points, or 3.84%, to 909.70. The tech-heavy Nasdaq composite index gained 62.43 points, or 4.14%, to 1,571.74.

On the New York Stock Exchange, 25 stocks were higher in price for every seven that declined. The ratio on the Nasdaq was 20-8 positive. Trading was moderate. Traders were squaring positions week's Quadruple Witching expiration of futures and options, reports S&P MarketScope.

European equities rallied, with major indexes climbing 6.19% in London, 7.63% in Frankfurt, and 8.68% in Paris. Asian markets finished solidly higher, with Tokyo stocks rising 5.20%, Hong Kong climbing 8.66%, and Shanghai up 3.57%.

Obama's pledge to produce the largest economic stimulus plan since the 1950s when he takes office in January in bid to revive economy. He also warned things will be worse before they get better.

The Wall Street Journal reported Monday that the U.S. government could sell more than $400 billion in Treasury notes and bills in the final weeks of the year to cover its soaring funding needs, and it looks like it will continue to get the money on the cheap. "So many horrible things have happened and the economy is in such bad shape. The smart thing to do is to hide in Treasurys," according to Ward McCarthy of Stone & McCarthy.

Federal Reserve Vice Chairman Donald Kohn said Monday the "challenge for regulators and other authorities is to create an environment that supports greater bank intermediation, which should help to restore the health of the financial system and the economy," in his brief comments at a Office of Thrift Supervision National Housing Forum. "We want banks to be willing to deploy capital and liquidity, but they must do so in a responsible way that avoids past mistakes and does not create new ones," he added.

Fed Governor Randall Kroszner said banks need to take a much broader view of investment risk as they dig their way out of the current financial crisis, and mortgage-backed securities need to become simpler and much more transparent. "Not only do banks need to assess counterparty credit-worthiness and behavior on an individual basis, they also need to assess counterparties on a collective basis," Kroszner told a risk management conference in Geneva. "They need to understand how their own actions to protect positions can put pressure on key counterparties, especially when other market participants are likely to be taking similar action to protect themselves," he said.

German industrial production fell 2.1% in October, raising the likelihood of a weaker than expected figure for the euro zone, which is due on Friday.

The British Office for National Statistics said output prices fell 0.7% on the month in November. That took the annual rate of output price inflation down to 5.1% last month from 6.7% in October, the lowest since December 2007. The ONS said the fall in output prices was driven by an 8.3% fall in petroleum products.

Apple Inc. (AAPL) shares were sharply higher after a CNBC report that the company confirmed that a version of its popular iPhone will be selling soon through Wal-Mart (WMT), but Apple denied reports that the price for the device will be as low as $99.