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Stocks in the United States jumped on Friday, capping a tumultuous week on optimism that giving Fannie Mae and Freddie Mac a bigger role in the mortgage market will ease a credit crunch that claimed Bear Stearns as victim after JP Morgan Chase & Co's cut-rate buyout.
Stocks closed out their best week in nearly two months on the strength of financial shares, which bore the brunt of investors' wrath since the credit crisis unfolded last summer.
The benchmark Standard & Poor's 500 gained 2.4 per cent for the day, up 3.2 per cent for the week.
Fannie Mae and Freddie Mac each rose more than 50 per cent since Monday. Meanwhile, major banks such as Bank of America, JPMorgan and Citigroup rose between 8 and 10 per cent on Friday, while the Dow Jones index of home building stocks soared 8.3 per cent.
General Electric helped lead the Dow higher with a 5.3 per cent gain to $37.49 after Merrill Lynch raised its rating on the stock as a safe bet in a slowing economy.
A second day of plunging oil and gold prices helped ease fears of inflation getting out of control, spurring gains across the board.
Energy-sensitive sectors, such as airlines and consumer discretionary companies, gained about 3 per cent.
The Dow Jones industrial average gained 261.66 points, or 2.16 per cent, to 12,361.32.
The Standard & Poor's 500 Index climbed 31.09 points, or 2.39 per cent, to 1,329.51.
The Nasdaq Composite Index rose 48.15 points, or 2.18 per cent, to 2,258.11.
Fannie Mae rose 11.7 per cent to $34.30, while Freddie Mac climbed 9 per cent to $32.58 after Keefe, Bruyette & Woods upgraded them, saying government actions would help the mortgage giants in stabilising the ailing housing market.
Crude oil fell 70 cents to $101.84 a barrel, after earlier sliding to a session low below $99 a barrel. That pullback in oil prices alleviated worries about the effect of high energy costs on consumers and businesses.
Shares of Wal-Mart Stores, the world's largest retailer, rose 4.8 per cent to $53.23.
Stocks had rallied early in the day after a survey from the Philadelphia Federal Reserve Bank showed factory activity in the US Mid-Atlantic region shrinking, but by slightly less than the median forecast.
Helping the Nasdaq were shares of Intel, up 3.1 per cent to $21.75 after the chip maker raised its quarterly dividend by 10 per cent.
Trading was heavy on the New York Stock Exchange, with about 2.77 billion shares changing hands; while on Nasdaq, about 2.68b shares traded.
European stocks ended lower on Friday, losing ground for the fifth time in six sessions as mining and energy shares retreated along with commodity prices.
But buoyant pharmaceutical stocks and a late rally among a number of European banks helped cushion the fall.
The FTSEurofirst 300 index of top European shares unofficially closed 0.3 per cent lower, at 1,227.03 points. The index, on track to record its worst quarterly performance since the third quarter of 2002, closed the week with a loss of 2.2 per cent.
Credit Suisse was the biggest laggard among Europe's blue chips, losing 6.4 per cent after the Swiss lender warned it could report its first quarterly loss in five years.
- REUTERS
