Wall Street rallies on GE and financials

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By Deepa Seetharaman

NEW YORK (Reuters) - Stocks rallied on Tuesday as bargain hunters snatched up beaten down shares after Monday's steep sell-off, buttressed by news that General Electric would maintain its dividend.

The energy sector, currently the least expensive group in the S&P 500 relative to earnings expectations, rebounded after heavy losses a day earlier as crude oil held around $49 a barrel.

Financial stocks, which suffered their worst one-day loss on record on Monday, also rallied after Federal Reserve Chairman Ben Bernanke on Monday strongly signaled that policy-makers would do whatever they can to stabilize the economy and financial markets.

The gains come a day after Monday's dive broke a five-day rally and drove the market to almost 11-year lows.

GE shares leaped nearly 11 percent to $17.10 on the New York Stock Exchange, making it among the top leaders on the Dow, after the company reiterated its plan to maintain its dividend payout in 2009 even as it works to restructure its embattled finance arm, GE Capital.

"It might be risky, but some people are reading it as a bit of a positive," said Steve Sachs, director of trading at Rydex Investments. "GE may be signaling that the economy will recover."

The Dow Jones industrial average <.DJI> rose 220.38 points, or 2.70 percent, at 8,369.47. The Standard & Poor's 500 Index <.SPX> gained 26.91 points, or 3.30 percent, at 843.12. The Nasdaq Composite Index <.IXIC> jumped 45.33 points, or 3.24 percent, at 1,443.40.

Shares of Bank of America and Citigroup Inc both rose around 10 percent.

"The Fed is acknowledging the extraordinary times that we are in and it is broadening its arsenal to stabilize the economy and the markets," said Tom Sowanick, chief investment officer at Clearbrook Financial in Princeton, New Jersey.

The S&P financial index was up 5.7 percent, a day after Bernanke raised the possibility of the Fed buying Treasuries and undertaking other so-called "quantitative easing" measures.

Energy shares also rose, with Dow components Chevron up 4 percent, and Exxon Mobil Corp up 3 percent. According to a recent ThomsonReuters Directors Report, the energy sector is currently the least expensive S&P sector, trading at a 12-month forward price-earnings ratio of 8.4.

By contrast, financials were trading at a price-earnings ratio of 9 and consumer discretionaries at a P/E of 17.2, making it the most expensive sector.

Shares of automakers also edged up after Ford Motor Corp submitted a restructuring plan demanded by Congress as a condition for a $25 billion rescue package for Ford and the tow other U.S. automakers. Ford said it would suspend bonuses for management worldwide and for all North American employees.

Ford shares jumped nearly 10 percent to $2.80, while General Motors shares were up nearly 5 percent.

Executives of the big-three U.S. automakers, including Chrysler, are due to present Washington officials with their plans to justify a $25 billion bailout as worries about possible bankruptcy persist.

As part of its plan, Ford said it expected its overall and North American automotive business to break even or be profitable in 2011. Ford said it did not anticipate a liquidity crisis next year, barring a bankruptcy of one of its domestic rivals.

Even so, there was caution amid worries about the deepening economic slump. The lobbying for the auto sector bailout will coincide with the release of November U.S. auto sales reports, which will likely be bleak.

On the Nasdaq, Research in Motion was the top drag, falling 6.6 percent to $37.16, after J.P. Morgan analyst Paul Coster cut his earnings outlook on the BlackBerry maker because of the slump in the global economy.

(Additional reporting by Jennifer Ablan; Editing by Leslie Adler)

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