Stocks rallied strongly on Tuesday after Citigroup said it was profitable in the first two months of 2009 and a key lawmaker said he expects the reinstatement of a rule that hinders bets a stock will fall.
Citigroup Chief Executive Vikram Pandit also stated in a memo to staff of the beleaguered bank he was confident about its capital strength.
Adding to the positive tone, U.S. Rep. Barney Frank, chairman of the U.S. House Financial Services Committee, said he is hopeful the Securities and Exchange Commission would reimpose the “uptick” rule in about a month.
The rule slows the pace of short selling and could help calm volatile markets.
“What really got the market going was the Vikram Pandit memo from this morning,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
“Any little hint of good news and this market was going to take off.”
The Dow Jones industrial average gained 379.44 points, or 5.80 per cent, to 6,926.49. The Standard & Poor’s 500 Index rose 43.07 points, or 6.37 percent, to 719.60. The Nasdaq Composite Index climbed 89.64 points, or 7.07 per cent, to 1,358.28.
The last time the S&P and Nasdaq rose this much was after the U.S. government decided to rescue Citigroup for the first time in late November, when it agreed to pump $20 billion of new capital into the bank to avert a collapse which could have crippled the world’s financial system.
Shares of Citigroup, in which the government more recently took a large common equity stake to help shore it up, jumped more than 36 percent to $1.43. Citi’s stock has fallen about 79 percent year to date.
Rep. Frank also echoed earlier comments from Federal Reserve Chairman Ben Bernanke, who called for “improvements” in mark-to-market regulations, rather than suspending them. Many have attributed these accounting rules for increasing losses and writedowns on bank balance sheets.
Other bank shares rallied, with Bank of America up more than 26 percent to $4.74 and Wells Fargo up nearly 15 percent to $11.45. The broad KBW Bank index jumped almost 13 percent.
JPMorgan was among top performers on the Dow with nearly a 19 percent jump to $18.86. All 30 Dow components were in positive territory.
The advance in financial shares marks a turnaround in investor sentiment after the sector has been hammered recently as banks’ credit losses swelled.
Other standouts included technology shares, with a jump in bellwethers like Apple Inc halting a three-day sell-off in the sector. The iPhone maker was the biggest boost to the Nasdaq 100, up 6.5 percent at $88.52. Microsoft gained 7.5 percent to $16.28 while Qualcomm added 6.3 percent to $35.08.
The benchmark S&P 500 went into Tuesday’s session at its most oversold condition in five months, when measured by its 50-day relative strength index.