Bank capital plan lifts futures, Citi jumps

NEW YORK (Reuters) - Stock index futures pointed to a sharply higher open for a second day on Tuesday as a plan by Washington to inject $250 billion of capital in major U.S. banks spurred investors to wade back into equities.

More signs of a thaw in the credit markets, with the cost of lending between banks easing, added to the positive tone. That came a day after Wall Street roared back from its worst week ever with one of its best single days ever.

The U.S. Treasury Department is poised to announce that it will buy stakes in the largest U.S. banks, including Bank of America Corp , Wells Fargo , Citigroup and Goldman Sachs .

"The amount of liquidity that's being pumped into the system is going to push off the problems for another day," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

"I think there will be at least some confidence that the market can hold here, and there will be people looking for some of the companies that can make it in this type of environment, that have been beaten up."

S&P 500 futures jumped 29.30 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 233 points and Nasdaq 100 futures gained 33.25 points.

Announcements by top officials are expected from Washington beginning about 8:05 a.m. EDT.

Washington's plan to take stakes in major banks mirrors steps already taken by Britain and announced by other governments around the world, including Germany and France, to stabilize the financial system and restore confidence after recent market turmoil.

The Financial Select Sector SPDR , an exchange-traded fund which tracks the performance of stocks in the Standard & Poor's 500 financials group, jumped more than 4 percent before the opening bell.

Shares of Citigroup jumped 14.6 percent to $18.05 before the bell, Bank of America Corp climbed 6 percent to $24.15, while shares of Wells Fargo -- which is buying Wachovia Corp , one of the casualties of the credit crisis -- rose 1.5 percent to $30.87.

JPMorgan Chase & Co gained nearly 4 percent to $43.50. Goldman Sachs shares advanced 9 percent to $121, as Morgan Stanley shares added 17.3 percent to $21.23. Bank of New York Mellon Corp shares were unchanged.

Washington's rescue for banks will be carried out over a period based on the relative strength and weakness of the banks' balance sheets and loan portfolios, people familiar with the scheme said.

Other media reports indicated that State Street Corp and Merrill Lynch , would also receive a capital injection. Merrill is being bought by Bank of America,

Similar plans in Europe helped restore some confidence and helped propel stock markets higher, with Japan's Nikkei <.N225> up more than 14 percent overnight and European stocks up more than 5 percent on Tuesday.

Additionally, the interbank cost of borrowing three-month dollars had its biggest fall since March on Tuesday and three-month euro rates the biggest fall this year, adding to hopes that credit markets will unfreeze.

On Monday, the Dow Jones industrial average <.DJI> rose 936.42 points, or 11.08 percent, to 9,387.61, its biggest one-day point gain ever and its biggest percentage gain since March 15, 1933.

(Editing by Kenneth Barry)

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