Wall Street gains on latest auto bailout

NEW YORK (Reuters) - Stocks rose on Tuesday after Washington expanded its bailout of the auto industry, boosting hopes that the government would be able to limit the severity of the year-long recession.

A after the Bush administration said it was buying $5 billion in equity in GMAC, the financing arm of General Motors said it will immediately increase its lending, which could help reverse GM's tumbling sales.

GM jumped 6.4 percent to $3.84, while rival Ford rose 1.4 percent to $2.25.

Investors shrugged off a series of economic reports that showed no sign that the recession was easing. Prices of single-family homes in October plunged at a record pace from a year earlier, while consumer confidence fell to a record low.

"The bulls believe the amount of cash on the sidelines will start to come back into the market in the new year as portfolios are reallocated more toward equities and out of cash, which is earning nothing," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

"But we've got a lot of bad economic data ahead of us. The home prices number is an example of that and it won't be the last bad piece of economic data we see."

The Dow Jones industrial average rose 78.45 points, or 0.92 percent, to 8,562.38. The Standard & Poor's 500 Index gained 9.30 points, or 1.07 percent, to 878.72. The Nasdaq Composite Index was up 18.32 points, or 1.21 percent, at 1,528.64.

Markets never mounted a significant year-end rally that many investors had wanted, and attention will begin to shift to what is expected to be a grim earning season in the new year, coupled with further negative economic data. The broad S&P 500 is down about 40 percent for 2008, making it one of the worst ever.

The move to assist GMAC was the latest in a string of government efforts to ease tight credit markets and cushion the impact of the recession.

Earlier in the month, the U.S. government agreed to throw a lifeline to GM and Chrysler LLC with up to $17.4 billion in emergency loans to head off a potential collapse that would have cost hundreds of thousands of jobs and further hit the already beleaguered economy.

Rohm & Haas jumped 7.8 percent to $57.52 after the Financial Times reported Dow Chemical could tap a $13 billion bridge loan or renegotiate the price to salvage its $15 billion takeover of the company.

Kuwait decided to scrap a joint venture with Dow Chemical over the weekend, depriving the company of financing it planned to use for the acquisition and sending shares of Rohm & Haas and Dow down sharply on Monday. Dow edged up 0.1 percent at $15.33.

Among economic indicators, consumer confidence fell to a record low in December as sentiment was hit by the worst job market in 16 years and prices of U.S. single-family homes dropped 18 percent in October from a year earlier. Business activity in the Midwest continued to shrink in December but at a less severe rate than expected.

(Editing by Tom Hals)