Wall Street got the news it wanted on the economy's biggest problems — banks and housing — and celebrated by hurtling the Dow Jones industrials up nearly 500 points.
Investors added rocket fuel Monday to a two-week-old advance, cheering the government's plan to help banks remove bad assets from their books and also welcoming a report showing a surprising increase in home sales. Major stock indicators surged more than 6 percent, including the Dow, which had its biggest percentage gain since October.
The Dow rose 497.48, or 6.8 percent, to 7,775.86, its highest finish since Feb. 13. It was the biggest point gain for the blue chips since Nov. 13 when they rose 552 points and the biggest percentage gain since Oct. 28. when they rose 10.9 percent. It was the fifth biggest point gain in the Dow's history.
Analysts who have seen the market's recent false starts are still hesitant to say Wall Street is indeed recovering from the collapse that began last fall. But the day's banking and housing news bolstered the growing belief that the economy is starting to heal, and that is what had investors buying.
"It's just hard to argue that there isn't an improvement in economic activity on the horizon," said Jim Dunigan, executive vice president at PNC Wealth Management.
The market began turning around two weeks ago on news that Citigroup Inc. was operating at a profit in January and February. A spate of more upbeat economic reports helped the market build on its gains, although the rally stalled last Thursday and Friday.
Analysts said they saw more fundamental strength in Monday's buying than they saw at the start of the rally. Dave Rovelli managing director of trading at brokerage Canaccord Adams, said there appeared to be less short covering, which occurs when traders are forced to buy to cover misplaced bets that stocks would fall. Short covering contributed to the market's surge after the Citigroup news.
"There is definitely new buying," he said. Rovelli also said the approaching end of the quarter can make money managers eager to buy into a market to make the statements they send to clients look stronger.
The market shot higher at the opening and kept going. The Treasury Department said its bad asset cleanup program would tap money from the government's $700 billion financial rescue fund and involve help from the Federal Reserve, the Federal Deposit Insurance Corp. and the participation of private investors.
The government's announcement was what the market had waited weeks to hear. Treasury Secretary Timothy Geithner had announced an outline of the program last month but provided few details then about how it would work, leading to a stock plunge that sliced 380 points from the Dow.
But while analysts were pleased with the market's performance Monday, they were also still cautious; Wall Street more than gave back its big yearend rally and continued falling during January and February.
Subodh Kumar, an independent investment strategist in Toronto, said the Fed's announcement that it would buy government debt and the details on plans to help banks are giving traders hope for recovery.
"The market is shedding some of its excess pessimism. That doesn't mean the market goes straight up," he said.
The National Association of Realtors' existing home sales report was overwhelmingly positive for investors although it showed a decline in home prices in February. Investors are embracing any sign that a glut in homes for sale may be easing. Monday's data followed a dose of good housing news last week as housing starts for February came in much better than expected.
Broader stock indicators also surged. The Standard & Poor's 500 index rose 54.38, or 7.1 percent, to 822.92, crossing the psychological milepost of 800. The Nasdaq composite index rose 98.50, or 6.8 percent, to 1,555.77.
The Russell 2000 index of smaller companies rose 33.61, or 8.4 percent, to 433.72.
The Dow Jones Wilshire 5000 index, which reflects nearly all stocks traded in America, jumped 7 percent. That's a paper gain of about $700 billion.
More than 10 stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.9 billion shares.
The Dow is now up 1,228 points, or 18.8 percent, from March 9, when it finished at its lowest point in nearly 12 years, although it's still down 1,000 points in 2009. The S&P 500 is up 21.6 percent in that time.
The Dow and the S&P 500 index remain more than 45 percent below their peak in October 2007.
Collapsing home prices and the damage they have caused banks are at the center of the economy's current problems and are a major focus for the stock market. Banks have sharply curbed lending after becoming weighed down with loans that have gone bad, especially mortgages.
Investors had been largely disappointed in the government's efforts to date to restore the banks to health, but finally seemed encouraged by the long-awaited announcement of details for the bad loan cleanup plan.
"The actions that we're getting from a policy standpoint are very helpful in removing the sand from the gears," said Alan Gayle, senior investment strategist at RidgeWorth Investments. "That is going to be good for the financials."
Shares of the country's largest banks, which have been pounded in recent weeks over concerns about their ability to weather the crisis, soared on Monday. Citigroup Inc. jumped 19.5 percent, and Bank of America Corp. added 26 percent.
Even banks seen as being on better footing posted big advances. JPMorgan Chase & Co. rose 25 percent, while Wells Fargo & Co. rose 24 percent.
Investors welcomed the rise in home sales Monday although the biggest jump in nearly six years came as first-time buyers pounced on deep discounts of foreclosures and other distressed properties. Analysts say it could be a nascent sign of recovery. But only weeks ago traders might have dwelled on the 15.5 percent drop in median prices.
"It's like putting on a different pair of glasses and you think you saw something different today than you saw yesterday," Dunigan said.
Bond prices were mixed as stocks rose. The moves were moderate as investors remained mindful of the Federal Reserve's plan announced last week to buy government debt to help drive down borrowing costs by reducing interest rates.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.68 percent from 2.64 percent late Friday. The yield on the three-month T-bill was flat at 0.19 percent.
Oil rose $1.73 to settle at $53.80 a barrel and the dollar was mixed against other major currencies. Gold fell. The price of gold has risen in recent weeks as investors have worried about the faltering economy and a weaker dollar.
Overseas, Britain's FTSE 100 rose 2.9 percent. Germany's DAX index rose 2.7 percent, and France's CAC-40 rose 2.8 percent. Japan's Nikkei stock average rose 3.4 percent.