By Leah Schnurr
NEW YORK (Reuters) - Stocks surged on Monday, following the worst week ever, as global efforts by governments to pump cash into banks sparked a rally in financial shares, while credit markets showed some signs of loosening up.
Governments, including those of Germany and France, stepped up efforts to restore confidence in the shaky banking system by offering multibillion-dollar bank rescues after weekend talks in Washington.
Morgan Stanley was the biggest percentage gainer on the S&P index, soaring more than 60 percent, after Japan's Mitsubishi UFJ Financial Group said it paid $9 billion for a 21 percent stake in the beaten-down U.S. securities firm that has turned itself into a bank holding company.
Also among the banks, Wachovia climbed 4 percent after the Federal Reserve approved the $12.46 billion takeover of the U.S. bank by Wells Fargo & Co. The S&P financial index rose 5.7 percent.
"The news that once again, U.S. authorities and other governments are still trying to fix this financial crisis was a positive spark and it appears to be sticking and is finally leading to a bounce," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio. "We were due for any type of a bounce. We were oversold by pretty much historic levels."
The Dow Jones industrial average climbed 566.70 points, or 6.71 percent, to 9,017.89. The Standard & Poor's 500 Index rallied 62.23 points, or 6.92 percent, to 961.45. The Nasdaq Composite Index advanced 120.66 points, or 7.31 percent, to 1,770.17.
General Motors jumped 31.7 percent to $6.44 after reports that the automaker has been in merger talks with rivals Chrysler LLC and Ford Motor Co, whose shares surged 24.1 percent to $2.47.
Defensive and consumer staples stocks rose as investors picked up shares in companies generally considered able to weather an economic downturn. Johnson & Johnson rose 9.2 percent to $61.01 on the New York Stock Exchange.
Among tech shares, Apple Inc was up 9 percent at $105.55 on Nasdaq, after Citigroup raised its recommendation on the U.S. technology hardware and equipment sector to "market weight" from "underweight." Microsoft gained 12 percent to $24.08.
Energy companies were lifted alongside the price of oil, which held above $80 a barrel on optimism over the governments' moves to shore up confidence in the banking system. Exxon Mobil gained 6.6 percent to $66.50, and Chevron climbed 7.5 percent to $62.15.
Morgan Stanley shares spiked 64.8 percent to $15.89 on the New York Stock Exchange, while those of Wachovia rose 4.1 percent to $5.36.
The optimism over bank rescues, however, came at the same time as a U.S. bank sector downgrade by Citigroup, which contributed to declines in other bank shares, including JPMorgan, off 1.8 percent at $40.88.
U.S. Treasury Secretary Henry Paulson has called a meeting of top banking heads for later this afternoon, according to a report from the Wall Street Journal. Paulson will discuss plans to take stakes in financial firms, according to the report.
Wall Street capped its worst week ever on Friday, falling for an eighth straight session, as investors feared the credit crisis was spiraling out of control and the global economy was threatened by deep recession.
In a sign that credit markets may be loosening up, the cost for banks to borrow dollars, sterling and euros from each other over three months fell.
(Additional reporting by Ellis Mnyandu; Editing by Jan Paschal)
