By Ellis Mnyandu
NEW YORK (Reuters) - Stocks advanced on Friday as Wells Fargo's proposed acquisition of troubled U.S. bank Wachovia Corp lifted financial shares and the House of Representatives readied to a vote on a $700 billion plan to shore up financial markets.
Investors bet the House, which earlier this week rejected the legislation, would pass a revised bill to stabilize the U.S. financial sector. A top Republican leader was optimistic the deal would pass.
The deal between Wells-Fargo, one of the strongest U.S. banks left, and Wachovia was a stock transaction valued at more than $16 billion. It scuppered a deal announced on Monday and backed by the government for Citigroup to buy parts of Wachovia.
"The bottom line, the market is set up for a positive vote from the House, and we expect part of the market's move up is in response to that," said Fred Dickson, market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
The Dow Jones industrial average rose 167.58 points, or 1.60 percent, to 10,650.43. The Standard & Poor's 500 Index climbed 25.26 points, or 2.27 percent, to 1,139.54. The Nasdaq Composite Index added 53.77 points, or 2.72 percent, to 2,030.49.
Earlier, the market was unfazed by a government report showing the number of U.S. jobs lost in September was the greatest in 5-1/2 years. Signs in another report that growth in the vast services sector improved slightly in September offered encouragement.
Shares of Wachovia jumped 69.3 percent to $6.62 on the New York Stock Exchange, while the S&P financial index climbed 3.3 percent.
Among other financial companies, Goldman Sachs was up 5 percent at $138.11 and Bank of America rose 4 percent at $37.83. But shares of Citigroup declined almost 9 percent to $20.56.
On Nasdaq shares of Apple Inc jumped more than 4 percent to $104.31 after the maker of the iPod denied a report that Chief Executive Steve Jobs had a heart attack. Before the denial, Apple had dropped as much as 5 percent.
The Labor Department said employers slashed an unexpectedly large 159,000 jobs as employment contracted for a ninth straight month. The Institute for Supply Management said its non-manufacturing index rose slightly to 50.2.
The $700 billion financial sector bailout is designed to mop up bad mortgage debts on the banks' balance sheets in a bid to loosen up lending to boost economic growth.
(Additional reporting by Steven C Johnson, Editing by Kenneth Barry)
