Stocks Charge Ahead as Cavalry Appears

News at a Glance

• Citi Bailed Out: Fed agrees to absorb toxic assets.
• Big Jump: Traders cheer Citi rescue, equities surge.
• Open House: Builders seek $250 billion bailout from D.C.
• Obama Names Team: Introduces Treasury chief, advisors.

The Lowdown

New government measures aimed at curbing the economic slump relieved Wall Street Monday, as the Treasury and the Fed rescued ailing banking giant Citigroup while President-elect Obama and his top aides signaled support for a big fiscal stimulus.

The Dow Jones Industrial Average rose 396 points to 8442, albeit well off the 550-point gain it held 17 minutes before the closing bell. The Nasdaq jumped 88 points to 1472. The S&P 500 motored 52 points higher to 852, for a two-session gain of 13% since hitting an 11-year low Thursday.

Financial dependents led the way, Citigroup's (C) 58% recovery from last week's slump sparking plenty of short-covering in the battered shares of Goldman Sachs (GS) and Morgan Stanley (MS). Commodity suppliers, home builders and retailers came along for the ride.

Energy stocks got a boost as crude oil futures surged above $53 a barrel. The dollar lost ground and bonds surrendered some of last weak's landmark gains as fears of a financial collapse receded.

Despite the rally, the S&P finished just three points above its Oct. 27 low. The index managed to gain 18% from that perch in little more than a week, only to skid 25% in the next dozen sessions, capped by the selloff last Thursday.

In the latest policy change for the $700 billion TARP bailout plan, the government will use some of the funds to guarantee the bulk of a $306 billion portfolio of distressed Citigroup (C) assets, the Fed announced. Citi will be responsible for the first $29 billion in losses on the portfolio and for 10% of the red ink on the rest.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," according to a joint statement issued by the Treasury, the Fed and FDIC.

Citi will also receive an additional $20 billion capital infusion from Washington. The firm's quarterly dividend will be drastically cut to a penny per share.

Meanwhile, other industries continued to beat the drum for bailouts of their own. Auto makers set about trying to prove to Washington that an investment in their industry would not go to waste.

The home builders' lobby is asking Congress for a $250 billion stimulus program entitled "Fix Housing First," which would aim to triple the current tax incentives for new home buyers, The Wall Street Journal reported. The lobby received extra ammunition today after the National Association of Realtors said the annual rate of existing home sales fell in October, even as the median selling price dropped 11% year-over-year.

The government appears inclined to extend help to the housing industry. Treasury Secretary Henry Paulson may reportedly seek to tap the second half of the government's $700 billion rescue fund to help struggling homeowners.

President-elect Obama's economic team continued to take shape over the weekend. Obama tapped Timothy F. Geithner, president of the New York Fed, as the next Treasury secretary, and Lawrence H. Summers as his senior economic adviser. New Mexico Gov. Bill Richardson was belived to hold the inside track to head Commerce. Obama also named economist Christina Romer as the next chairman of the Council of Economic Advisers.

The early priorities of the Obama administration also came into sharper forcus. Obama will seek the creation of 2.5 million jobs by 2011 and push for a second economic stimulus package, including tax cuts, that could cost $700 billion over the next two years. He is also considering delaying tax increases for the wealthy until the current lower rates sunset at the end of 2010, Reuters reported.

Overseas, stocks were mixed on Citi's plan and the changes afoot in Washington. In Asia, Japan's Nikkei climbed 2.7%, while Hong Kong's Hang Seng slipped 1.6%. In Europe, the FTSE closed up 9.8% after the government unveiled wideranging stimulus measures.

Corporate News

• General Motors (GM) plans to hold talks to lower its debt and renegotiate its terms with organized labor in an effort to prove to the government the firm is worthy of a billion-dollar federal loan, Bloomberg reported, citing anonymous sources.
• Harsh realities for the auto sector will not necessarily affect reality television, at least not in the short term. Ford (F) plans to continue its sponsorship of "American Idol," Broadcasting & Cable reported.
• Anheuser-Busch InBev, the world's largest brewer, plans to raise as much as $8.1 billion in a rights offering intended to defray some of the cost of merging the component companies. The firm said it aims to sell up to 986.1 million shares. InBev's $52 billion acquisition of Anheuser-Busch was completed last week.

The Economy

• The annual rate of existing home sales fell to 4.98 million in October, down from a revised annual rate of 5.14 million in September, the National Association of Realtors said. Economists had expected the rate to have dipped to 5.05 million sales a year. REPORT

ReadMe

• CNN on the Obama employment plan: The president-elect outlined a program over the weekend to create 2.5 million new jobs by 2011. STORY
• The New York Times on the New Deal: The path out of a depression (or a recession) is not always cleaved by policy makers. STORY
• Slate on the Great Depression: There are critical differences between the current crisis and that of 1929. STORY
• Bloomberg on volatility: A record run for the VIX suggests anxiety continues to pervade the markets and is unlikely to dissipate in the near term. STORY

WatchMe

• Reuters on Thanksgiving plans: Gas prices are down, yet so is holiday travel. VIDEO
• TheStreet.com on pharmaceuticals: The sector may have been prematurely undervalued after the presidential election. VIDEO
• Modern Marvels: The series takes a look at the commodification of the American turkey. HIST, 8 p.m.