Stocks surge on report of Geithner nomination

By TIM PARADIS and SARA LEPRO AP Business Writers

Nov 21, 2008, 6:01 PM EST

NEW YORK (AP) --

Wall Street staged a comeback Friday, with the major indexes jumping more than 5 percent and the Dow Jones industrials surging nearly 500 points.

The late afternoon rally ended another volatile week that saw stocks reach six-year lows.

Stocks erased about half of the steep losses from Wednesday and Thursday, as investors got an unexpected jolt of confidence following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.

Investors have been looking for a clear message from Obama on who will lead his economic brain trust at a time when the country is facing its biggest financial crisis since the Great Depression. In addition, some on Wall Street have grown frustrated with outgoing Treasury Secretary Henry Paulson over his handling of the government's effort to rescue the banking system.

"Something needed to be done on the economy," said Ben Halliburton, chief investment officer at Tradition Capital Management. "The fact that they've got the team together, maybe that is going to shorten the period of indecision."

A senior Democratic official familiar with the deliberations confirmed to The Associated Press that Geithner is likely to be named as Treasury secretary. The official requested anonymity because the nomination hasn't been formally announced.

The advance in stocks also came as the FDIC said it would guarantee up to $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan. The directors of the Federal Deposit Insurance Corp. voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.

Stocks fluctuated throughout most of trading Friday, as fresh concerns over the stability of the financial sector prevented the market from establishing any sustainable gains. But stocks moved sharply higher in the final half hour after the report on Geithner.

The Dow rose 494.13 points, or 6.54 percent, to settle at 8,046.42. The Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.

The Russell 2000 index of smaller companies rose 21.23, or 5.51 percent, to 406.54.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 2.37 billion shares.

With the steep pullbacks earlier this week, the Dow began Friday's session down 43.1 percent this year, while the S&P 500 index - a benchmark for the overall U.S. stock market - was down 48.8 percent. The Nasdaq composite index had lost 50.4 percent this year.

And despite Friday's gains, stocks are still down sharply for the week. The Dow has lost 5.31 percent, while the S&P 500 fell 8.39 percent and the Nasdaq lost 8.74 percent. Paper losses for the week in U.S. stocks came to $1 trillion, according to the Dow Jones Wilshire 5000 Composite Index, which reflects nearly all stocks traded in America.

In the two previous days, the Dow had lost a staggering 873 points, more than 10 percent of its value, and the broader Standard & Poor's 500 index had sunk to its lowest level since 1997.

Still, Friday's rally sets up the potential for more gains going forward, analysts said.

"I think we're clearly set up for some sort of relief rally," Halliburton said. "People have been holding their breath for a relief rally for weeks. Unfortunately, most of the rallies have been short-lived."

But while the cloud of uncertainty surrounding Obama's economic team has been removed, there are still plenty of unknowns facing the market.

As a result, volatility will remain a major force on Wall Street for some time to come, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

He said worries about marquee companies from General Motors Corp. to Citigroup Inc. are unnerving investors.

"What we're seeing is these symbols of American business history really suffering and prompting investors to call into question the viability of the system," Ablin said, referring to the functioning of the broader economy.

Investors have grown increasingly anxious this week that losses from souring debt will swamp banks, even those given financial support through the government's $700 billion rescue plan. Citigroup, in particular, is a concern for Wall Street because the company hasn't booked a profit in the past four quarters.

As the banking giant's shares slid below $4, analysts said Friday it may be forced to merge or sell some of its prized businesses. Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.

Investors have also worried about the fate of GM, Ford Motor Co. and Chrysler LLC. The heads of the companies, warning that automakers are perilously low on cash, have been asking Washington for $25 billion in loans. But lawmakers have likely put off a vote on whether to extend a lifeline until next month and have asked the automakers for detailed plans about how they would use the money. The prospect of a bankruptcy filing by one or more of the companies has added to Wall Street's worries about the state of the economy.

Bond prices fell Friday as credit markets eased somewhat following a freeze-up Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.19 percent from 3.00 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent late Thursday.

Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange. The dollar fell against other major currencies, while gold prices rose.

Overseas, Japan's Nikkei stock average jumped 2.70 percent. In European trading, Britain's FTSE 100 fell 2.43 percent, while Germany's DAX index fell 2.20 percent, and France's CAC-40 fell 3.33 percent.

Officials: Obama plans to tap Geithner at Treasury

By LIZ SIDOTI and DAVID ESPO Associated Press Writers

WASHINGTON (AP) --

President-elect Barack Obama intends to name Timothy Geithner, president of the New York Federal Reserve, as his treasury secretary to confront the nation's intense economic turmoil, senior Democratic officials said Friday. The stock market soared on the news.

Word of Geithner's likely selection emerged as New York Sen. Hillary Rodham Clinton, in line to become secretary of state, said through a spokesman that discussions were on track for her appointment but no final arrangement had been made.

Obama plans to announce Geithner's appointment in Chicago on Monday, barring an unforeseen snag in a background check that is nearly complete, said one of the senior officials, both of whom were familiar with the deliberations.

Obama's choice for attorney general, a third critical post as the president-elect rounds out his top Cabinet echelon, is Eric Holder, who held the No. 2 slot in the Justice Department in President Bill Clinton's administration.

If nominated and confirmed by the Senate, Geithner, 47, would assume chief responsibility for tackling an economic slowdown and credit crunch that threaten to create the deepest recession in more than a generation. In his current post in New York, he has played a key role in the government's response to the financial crisis and has worked closely with Treasury Secretary Henry Paulson and Ben Bernanke, chairman of the Federal Reserve.

As a Treasury Department official during the Clinton administration, Geithner (pronounced GITE-ner) dealt with international financial crises and played a major part in negotiating assistance packages for South Korea and Brazil.

Officials also said New Mexico Gov. Bill Richardson had emerged as a likely pick as commerce secretary, although he had hoped to be secretary of state. Like Clinton, he was a rival of Obama's for the Democratic presidential nomination last winter. He dropped out after the early contests, though, and soon threw his support behind the eventual winner.

The officials spoke only on condition of anonymity because they were not authorized to publicly discuss the anticipated appointments.

Geithner's appointment could come as soon as Monday, but it was not clear when Obama intended to formally unveil any of his other picks for the administration that takes office at the stroke of noon on Jan 20. The president-elect has largely stayed out of public view since his election on Nov. 4, preferring to work quietly with aides and Vice President-elect Joe Biden in a suite of offices in downtown Chicago.

One non-Cabinet choice that also has gotten close attention in Washington was announced Friday: where Obama daughters Malia and Sasha would attend school.

The winner: Sidwell Friends School, a private institution that another White House child, Chelsea Clinton, attended in the 1990s.

As for the Cabinet, Obama faces unusual challenges and has moved swiftly in assembling his team. Former President George H. W. Bush made his first Cabinet pick the day after his election in 1988, but former President Clinton did not name any members until after Thanksgiving. The current President Bush's transition was delayed by the contested result in Florida.

While speculation has been rampant about most top-level appointments, there has been relatively little about Obama's choice for defense secretary. His aides encouraged speculation before the election that Robert Gates, who now holds the position, would remain in office for an interim period.

Other Cabinet selections so far include former Senate Majority Leader Tom Daschle of South Dakota as secretary of health and human services and Arizona Gov. Janet Napolitano as secretary of the Department of Homeland Security.

Napolitano was an early supporter of candidate Obama among the ranks of Democratic governors, as was Kathleen Sebelius of Kansas. Sebelius has figured prominently in recent days in speculation as possible secretary of labor.

Obama has repeatedly referred to the economic crisis as the top priority for his new administration.

Geithner held posts in the Treasury Department under three administrations and five secretaries before moving to the New York Fed in 2003. He also held positions at the International Monetary Fund and was employed at the private firm of former Secretary of State Henry Kissinger.

The Dow Jones industrials soared by nearly 500 points late in the day, a sharp rise that coincided with first reports of Geithner's possible appointment.

However, one Wall Street veteran suggested that Geithner's role in the Bush administration's bailout program could cause controversy. "I would expect his confirmation hearings to be animated, with some strong opposition asking questions about his involvement in the AIG, Lehman, Goldman, Morgan and Bear decisions by the New York Fed," said Joshua Rosner, managing director at research firm Graham Fisher & Co. in New York.

Unlike Geithner's reported selection, the Clinton saga was proving to be one of the longest-running and more public of the secrecy-shrouded search for an Obama Cabinet.

A week ago, the New York senator flew unannounced to Chicago to meet with the president-elect. That gave way to days of negotiations in which her husband, former President Bill Clinton, agreed to disclose the names of donors to his library and charitable foundation in anticipation of the close scrutiny her nomination would be sure to face.

Obama has moved with unusual speed to select officials for his administration. And one Democrat said John Podesta, a leader of the transition team, had told Senate aides on Friday that Obama hoped for speedy confirmation so the new administration could get to work quickly after Jan. 20.

Obama also is filling out the ranks of his White House staff.

He named Patrick Gaspard as his political director. Gaspard was Obama's national political director during the general election campaign, and has long ties to labor.

Other appointments included: Jackie Norris as chief of staff to first lady Michelle Obama; Catherine M. Russell as chief of staff to Vice President-elect Joe Biden's wife Jill; Cynthia Hogan, as counsel to the vice president, and Moises V. Vela Jr. as director of administration for the vice president.

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Associated Press Writers Nedra Pickler and Lisa Tolin contributed to this story.