Stocks jump on report of Geithner nomination

updated 7:52 p.m. ET Nov. 21, 2008

NEW YORK - Wall Street put a stop to a terrifying decline and stormed higher Friday as President-elect Barack Obama appeared ready to tap the chief of the New York Federal Reserve as the next treasury secretary and hand him the herculean task of righting the U.S. financial system.

The Dow Jones industrial average, which had broken even for the day until news of the nomination leaked about an hour before the close, raced upward and finished 494 points higher, a rally of more than 6½ percent.

The outbreak of buying pushed the Dow above 8,000 — a figure that would have seemed like a nightmare three months ago but on Friday was a relief for Americans who have watched their investments and retirement savings drain away with alarming speed.

In the two previous days, the Dow had lost a staggering 873 points, more than 10 percent of its value, and the broader Standard & Poor’s 500 index had sunk to its lowest level since 1997.

The turnaround came when word reached Wall Street that Obama was likely to nominate New York Fed president Timothy Geithner, 47, for treasury secretary. Geithner would assume top responsibility for tackling what threatens to be the deepest recession in a generation.

Financial markets despise uncertainty, and investors were looking for a clear message from Obama on who will make up his economic brain trust. Wall Street had been voicing increasing frustration with Henry Paulson, the current treasury secretary, over his erratic handling of the federal financial rescue system.

“Something needed to be done on the economy,” said Ben Halliburton, chief investment officer at Tradition Capital Management. “The fact that they’ve got the team together, maybe that is going to shorten the period of indecision.”

Elsewhere, the government continued its efforts to shore up the financial system. The Federal Deposit Insurance Corp. also said it would guarantee up to $1.4 trillion in U.S. bank debt for more than three years as part of the government’s financial rescue plan.

The decision is aimed at breaking the logjam of bank-to-bank lending. The health of the economy depends on the free flow of credit, and credit markets cinched up again as the market plunged earlier this week.

The benchmark Standard & Poor’s 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.

The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.

Video   Stocks soar on Treasury nominee news Nov. 21: U.S. markets surge after news that President-elect Barack Obama had picked N.Y. Fed chief Tim Geithner to be the next treasury secretary. A CNBC panel discusses. CNBC

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 9.27 billion shares, up from the 8.96 billion shares that exchanged hands on Thursday. This makes Friday’s volume the heaviest since the 11.20 billion seen on Oct. 10.

The Friday afternoon rally managed to prevent the week from being one of the few most dismal in Wall Street history. Corporate mainstays running the gamut from Gap Inc. to Alcoa Inc. and Walt Disney Co. to Microsoft Corp. surged by double-digit amounts.

But it did not erase heavy losses for the week. The Dow finished down about 5 percent for the five days, and other major averages suffered, too — 8 percent for the S&P 500, nearly 9 percent for the Nasdaq.

The Dow finished at 8,046, and the S&P just a hair over 800.

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