Wall St rises on efforts to spur economy

NEW YORK (Reuters) - Stocks rose on Wednesday as Wall Street's worst year since the Great Depression draws to a close, with new efforts to stem the recession from Washington lifting equities for the second consecutive session.

Late Tuesday, the Federal Reserve provided clarity on its plan to reduce mortgage costs and set a goal to buy $500 billion in mortgage-backed securities by mid-2009, a move that surprised analysts in its aggressiveness.

By buying back the securities more quickly than expected, investors hope mortgage rates will fall at a faster pace and stimulate the beleaguered housing market.

The move came a day after lawmakers gave an additional $6 billion to General Motors Corp and its financing arm, GMAC, in another effort to stabilize the auto industry and prevent staggering job losses.

While 2008 has been a brutal year for global markets, investors are hoping the inauguration of President-elect Barack Obama will lay the ground for a recovery.

"There's an optimism that the new team is going to do something," said Michael Cuggino, president and portfolio manager of Permanent Portfolio Funds in San Francisco.

"The impact of fiscal policy will play a huge part in determining how deep and how long the recessionary period is and how robust the recovery period will be."

The Dow Jones industrial average <.DJI> was up 112.15 points, or 1.29 percent, to 8,780.54. The Standard & Poor's 500 Index <.SPX> rose 13.07 points, or 1.47 percent, to 903.71. The Nasdaq Composite Index <.IXIC> gained 24.55 points, or 1.58 percent, to 1,575.25

Still, the S&P looks set to end 2008 down about 40 percent for the year, although it has recovered about 18 percent since scraping an 11-year low on November 20.

The Nasdaq was boosted by large-cap tech companies that are seen as better able to withstand the economic crisis due to large cash reserves. Qualcomm Inc , the wireless chip maker, was up 3.6 percent to $36.20, while BlackBerry maker Research in Motion rose 5.6 percent to $40.95.

Industrials helped lift the S&P 500, including Pall Corp , Textron and Dow component Caterpillar Inc . The S&P Industrials index <.GSPI> gained 4.5 percent.

Pall, a maker of filtration products, jumped 9 percent to $28.37, while Textron surged 8.3 percent to $13.96. Heavy equipment maker Caterpillar rose 2.8 percent to $44.86 as one of the top performers on the Dow.

Exxon Mobil was the top boost to the Dow, rising 2 percent to $80.20 as oil rose to over $43 a barrel. Chevron rose 1.1 percent to $74.19 while the S&P Energy index jumped 7.7 percent.

Housing was another bright spot. Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week and fell to their lowest level since 1971, according to a survey released by home funding company Freddie Mac.

The drop in rates boosted demand for home loans, and U.S. mortgage applications held at the highest level in more than five years during the Christmas holiday week, an industry group said on Wednesday.

The Dow Jones U.S. Home Builders index <.DJUSHB> was up 4 percent after the data, led by luxury home builder Toll Brothers , up 3.1 percent to $21.23.

(Editing by Tom Hals)

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