By Herbert Lash
NEW YORK (Reuters) - U.S. stocks had their best day in sixyears on Thursday on news of a U.S. Treasury plan to resolve acredit crisis that has rocked financial markets all week, whicherased an earlier safe-haven bid for gold and U.S. governmentdebt.
The late-stage rally, which sent the Dow up more than 400points and the Nasdaq and benchmark S&P 500 up more than 4percent, capped a day of whip-saw trade in global markets.
Initial enthusiasm over a move by the world's leadingcentral banks to thaw the credit crunch with an injection of$180 billion (99 billion pounds) initially sent stock marketsup, only to turn negative as fears of financial contagion --including questions about the future of investment banks MorganStanley and Goldman Sachs -- spread through markets.
News that U.S. Treasury Secretary Henry Paulson has spokenwith Congressional lawmakers about a plan to deal with bad debtsimilar to the creation of the Resolution Trust Corporation in1989 that resolved the U.S. savings and loan crisis spurred thelate rally.
"If the government can come up with a comprehensive planthat is viewed by the market as a plan that would help incontaining the problems in the financial sector in the U.S.,that would be seen as a very positive development," saidMatthew Strauss, senior currency strategist at RBC CapitalMarkets in Toronto.
The Dow Jones industrial average closed up 410.03 points,or 3.86 percent, at 11,019.69. The Standard & Poor's 500 Indexrose 49.91 points, or 4.32 percent, at 1,206.30. The NasdaqComposite Index jumped 100.25 points, or 4.78 percent, at2,199.10.
For all three indexes it was the biggest one-day percentagegain since October 2002 --when the last bull market was born.
Earlier in the day, in a sign of tight credit and marketfear, Putnam Funds said it closed its prime money market fundbecause of heavy redemptions from institutional investors onWednesday. Credit quality of the fund was not an issue, Putnamsaid.
In a comment echoed by other traders and investors, AnthonyConroy, head trader for BNY ConvergEx in New York, said: "Thereare no safe havens right now."
The investment portfolio of State Street, one of thelargest custodian banks in the world, came under question.
"Investors are taking the approach that, 'Shoot first, askquestions later,'" said Gerard Cassidy, an analyst at RBCCapital.
Oil prices also rose on optimism over U.S. governmentefforts to resolve the financial crisis, and amid mountingconcern over the impact of back-to-back hurricanes on U.S.energy inventories.
U.S. crude rose 72 cents to settle at $97.88 a barrel,adding to a $6.01-gain on Wednesday. London Brent crude rose 35cents to $95.19.
European stocks closed lower after reversing gains in latetrade as fears of outlook for financial firms weighed.
The FTSEurofirst 300 index of top European shares closeddown 0.6 percent at 1,063.69 points, its fourth straightsession of losses.
The index has lost about 9 percent so far this week, and ison track for its worst week since the attacks of September 11,2001.
HBOS jumped 17 percent after Lloyds TSB said it would takeover the embattled UK lender in a $22 billion deal thegovernment helped. Lloyds fell 15.1 percent.
The U.S. dollar rose against the yen and recouped mostlosses against the euro in a broad surge with U.S. stocks onthe news that Paulson was talking about a Resolution TrustCorp-type solution to the current financial crisis.
The dollar was last up 1 percent against the yen at 105.36yen, while the euro rose 1.2 percent to 151.22 yen.
The dollar fell against major currencies, with the U.S.Dollar Index fell 0.13 percent at 78.132.
The benchmark 10-year U.S. Treasury note fell 37/32 toyield 3.56 percent. The 30-year U.S. Treasury bond slid 54/32to yield 4.18 percent.
Gold prices spend most of the day higher, rising above $900an ounce, on safe-haven buying, but slipped late in the day.
Spot gold prices fell $12.30 to $850.40 an ounce.
Asian stocks overnight fell. Japan's Nikkei share averageended down 2.2 percent to a three-year low. The MSCIAsia-Pacific ex-Japan stocks index fell 3.7 percent afterearlier touching the lowest since July 2006.
(Reporting by Ellis Mnyandu, Burton Frierson, GertrudeChavez-Dreyfuss in New York; David Sheppard in London andBlaise Robinson in Paris; Writing by Herbert Lash; Editing byLeslie Adler)