Stocks Soar on Geithner Plan

Major indexes jumped Monday as the Treasury unveiled its plan to help rid banks of toxic assets

U.S. stocks closed sharply higher Monday, sending the large-cap S&P 500 index back above 800 and to its best level since October, 2008. Fueling the rally were the release of details on the Obama administration's plan to remove toxic assets from bank balance sheets, and news that U.S. existing home sales rose 5.1% in February.

Investors are hoping the Obama plan will unlock the credit markets and revitalize the economy, says S&P MarketScope. Wall Street was also encouraged by reports bond-fund giant PIMCO said it would participate in the plan.

On Monday, the 30-stock Dow Jones industrial average finished higher by 497.48 points, or 6.84%, at 7,775.86. The broad S&P 500 index added 54.38 points, or 7.08%, to 822.92. The tech-heavy Nasdaq composite index gained 98.50 points, or 6.76%, to 1,555.77. NYSE breadth was 29-3 positive, while Nasdaq breadth was 23-4 positive. Trading was active.

The market rally was paced by strength in financials, with Bank of America (BAC), Citigroup (C), and other financial-services firms gaining on news of the Treasury's plan.

Goldman Sachs (GS) also benefitreed from a Wall Street Journal report the company is considering selling part of its 4.9% stake in Industrial & Commercial Bank of China Ltd., a move that could raise more than $1 billion, according to several people familiar with the matter.

Homebuilding shares surged Monday on the better than expected existing home sales report.

The U.S. dollar, which last week suffered its biggest drop since the 1985 Plaza Accord, was lower. Treasuries and gold futures also fell. Crude oil futures were higher.

Noting that the U.S. financial system "is still working against economic recovery," the Treasury Dept. Monday revealed details of its plan to address toxic assets weighing on banks' balance sheets. Treasury said one major reason the financial system is still facing challenges is because of "legacy assets" and securities that are compromising banks' ability to raise capital and their willingness to boost lending.

Under the new program -- the Public-Private Investment Program -- the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. plan to work with private investors to try to restart a market for these troubled assets. The federal government will use as much as $100 billion in funds from the Troubled Asset Relief Program and capital from private investors in order to generate $500 billion in purchasing power to buy legacy assets, Treasury said. The department said the program could potentially expand to $1 trillion over time.

The program would address both the legacy loans banks are holding on their balance sheets and the legacy securities backed by mortgage-related debt that is clogging the balance sheets of financial firms.

"By providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets," Geithner said in an op-ed piece published in Monday's Wall Street Journal. "The ability to sell assets to this fund will make it easier for banks to raise private capital."