Stocks: Biggest gains of '09

The Dow gains 379 points, Nasdaq surges 7% and S&P 500 rallies 6.4% on Citigroup and possible limit on short selling.

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By Alexandra Twin, CNNMoney.com senior writer

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What would happen if the government let some big banks fail?
  • It would devastate the global economy
  • It would send a strong message to the banking industry
  • It wouldn't make a difference
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NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday - with all three major indexes logging their biggest gains of the year - after Citigroup cooled some worries about its future and regulators said they may reinstate a key trading rule.

The Dow Jones industrial average (INDU) gained 379 points, or 5.8%. It was the Dow's biggest one-day point and percentage gain since Nov. 24, 2008.

The S&P 500 (SPX) index gained 43 points, or 6.4%. It was the biggest one-day point gain since Dec. 16, 2008 and biggest on a percentage basis since Nov. 24, 2008.

The Nasdaq composite (COMP) climbed almost 90 points, or 7.1%. It was the biggest one-day point gain since Nov. 13, 2008 and biggest percentage gain since Oct. 28, 2008.

"Today's rally was very welcome news from a market that's gone nowhere but down over the last several months," said Michael Sheldon, chief market strategist at RDM Financial Group.

He said that the advance was strong in terms of the number of stock advancers versus decliners, as well as the trading volume. Looking forward, one issue is that there are a lot of sellers who are going to want to sell into strength, he said. But for the time being, stocks could manage more gains.

"Overall we are oversold here and there is still a lot of pessimism in place that could fuel a rally," he said. Extreme pessimism can be good for a rally from a contrarian perspective.

Citigroup (C, Fortune 500)'s CEO said that the company was profitable in the first two months of the year and expressed optimism about its capital position going forward. Shares of the hard-hit bank jumped 38%, leading a broader financial sector rally.

The stock advance picked up speed after Rep. Barney Frank, D-Mass. and the head of the U.S. House Financial Services Committee, said that the Securities and Exchange Commission would restore the "uptick rule." The SEC later confirmed to CNN that it could reinstate the rule as early as next month.

The uptick rule -- in place until July 2007 -- limited short sellers from adding to the downward momentum of a stock that was already plunging. In short selling, traders make money when the price of a stock falls. Critics say the ending of the rule exacerbated selling in the financial sector over the last year and a half.

Stocks were also bouncing Tuesday after the recent bloodletting in the markets.

Year-to-date, the Dow and S&P 500 had both fallen 25% as of Monday's close, while the Nasdaq had fallen around 17%. The market close Monday left the Dow and S&P 500 at 12-year lows and the Nasdaq at 6-year lows.

In light of the huge selloff, analysts have been saying for a while that the market was due for a sharp, bear market rally. That seemed to take hold Tuesday.

"There's a chance that if this gets enough gas, it could move up a lot more," said Tom Schrader, managing director at Stifel Nicolaus. That turned out to be the case last fall after the stock market hit lows in both October and November.

"There's tons of cash sitting in money markets and if people start to think they're going to miss out, they're going to want to jump back in," Schrader said.

In other news, Bernard Madoff - the alleged swindler behind a $50 billion fraud - is set to plead guilty to 11 counts that could bring a sentence of 150 years in prison.

Citigroup: CEO Vikram Pandit, in a letter to employees, said the bank was profitable year-to-date, surprising Wall Streeters who expect the company to post a quarterly loss. However, the letter, filed with the SEC, did not specify how much credit losses and other one-time items would offset the profit.

Shares had fallen about 80% through Monday's close on worries that the company won't be able to stay afloat, despite repeated government efforts to bolster the company. Last week, the government agreed to take up to a 36% stake in the company. (Full story)

Movers: American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) were among the other bank stocks rallying.

The KBW Bank (BKX) sector index, a measure of the 24 largest banks, climbed 15.6%.

However the rally was broad based, with all 30 Dow components advancing. In addition to the Dow's financial stocks, other big gainers included Alcoa (AA, Fortune 500), Caterpillar (CAT, Fortune 500), DuPont (DD, Fortune 500), General Electric (GE, Fortune 500) and General Motors (GM, Fortune 500).

A variety of big tech shares jumped, too, including Cisco Systems (CSCO, Fortune 500), eBay (EBAY, Fortune 500), Dell (DELL, Fortune 500), Google (GOOG, Fortune 500) and Dow component Intel (INTC, Fortune 500).

Dow component United Technologies (UTX, Fortune 500) cut its 2009 revenue and earnings-per-share forecast, citing the global recession. The company also said it was cutting 11,600 jobs this year, or about 5% of the workforce.

Dow component AT&T (T, Fortune 500) said it will add 3,000 jobs in 2009 as part of a capital spending program.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by over 13 to one on volume of nearly 2.19 billion shares. On the Nasdaq, advancers beat decliners by more than five to one on volume of 2.49 billion shares.

Today, March 10, is a dubious anniversary for the Nasdaq. It's the 9-year anniversary of the day it hit its all-time high of 5048.62 at the height of the tech boom. As of Monday's close, the tech-heavy index was down 75% from its peak. (Full story)

Bernanke: Investors also weighed comments from Federal Reserve Chairman Ben Bernanke, who called for an overhaul of the regulatory system. Speaking in the morning at the Council on Foreign Relations in Washington, the Fed chief said that companies deemed "too big to fail" need to be subject to stricter regulation so that a crisis like the current one doesn't happen again.

In comments made after his speech, Bernanke also said he does not support the suspension of the mark-to-market accounting rule, but rather improvements in it. Critics say the rule has exacerbated the financial crisis by forcing banks to value assets at current fire sale prices. (Full story)

The Securities and Exchange Commission is not planning to suspend the rule, Reuters reported. A congressional panel will exam the rule Thursday.

Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3% from 2.87% Friday. Treasury prices and yields move in opposite directions.

Lending rates tightened. The 3-month Libor rate rose to 1.33% from 1.31% Monday, while the overnight Libor rate held stead at 0.33%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian markets ended mostly higher, with the exception of the Japanese Nikkei. European markets rallied.

In currency trading, the dollar fell versus the euro and the yen.

U.S. light crude oil for April delivery fell $1.36 to settle at $45.71 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $22.10 to settle at $895.90 an ounce. To top of page

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