Stocks Surge 400 on Gov't Bailout Plans

NEW YORK (CNNMoney.com) -- Stocks surged Friday morning as investors hailed news that the federal government is working on a plan to help take the bulk of the credit crunch burden off banks.

The Dow Jones industrial average (INDU) added 404 points, or 3.7% at the open. The Standard & Poor's 500 (SPX) index jumped over 4%. The Nasdaq composite (COMP) gained nearly 5%.

Small cap stocks jumped too, with the Russell 2000 (RUT) up 4%.

Late Thursday, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told Congressional leaders that they are ready to establish a program that would let banks get rid of mortgage-related assets that are hard to value and harder to trade.

The Treasury Department said Friday it would insure money market mutual funds for finance firms that pay a fee to participate in this temporary program.

Financial stocks surged, with Morgan Stanley (MS, Fortune 500) up 31% and Goldman Sachs (GS, Fortune 500) up 25%. The two companies have been in focus over the last few days as investors have worried about their ability to hold up in the current financial environment. Washington Mutual (WM, Fortune 500), another name that has caused worry, gained 41%.

Also lifting futures was an announcement by the Securities and Exchange Commission that it was halting short-selling in financial firms to try and help restore confidence in the markets.

Art Hogan, chief market strategist for Jefferies & Co., said the short-selling ban is a good short-term plan for helping the hard-hit finance companies pull out of their slump, while the plan for getting rid of mortgage-related assets is good for the markets on a long-term basis.

"The longer-term plan is sort of a central clearing house where [the banks and finance firms] can clear some of the bad debt that's hard to trade," said Hogan. "That's really been a drag on the market."

"Whether it's tangible or emotional, we're getting markets back up to where they should be," he added.

On Thursday, stocks staged a late-session rally, with the Dow surging 410 points, or 3.9%, as speculation about the government bailout swirled.

Company news: Late Thursday, Oracle (ORCL, Fortune 500) reported higher quarter earnings that beat estimates, on higher revenue that missed estimates.

Fuel prices: Oil prices rallied in the early going, with U.S. light crude oil for October delivery up $5.22 to $103.10 a barrel.

Oil prices had been plummeting since peaking at $147.27 a barrel on July 11, as investors bet that sluggish global growth will diminish oil demand. But over the last few sessions, prices have been bouncing back.

COMEX gold for December delivery fell $30.50 per ounce to $866.50 after jumping over $116 per ounce over the last two sessions..

Other markets: In global trade, European markets surged in afternoon trade and Asian markets rallied.

Treasury prices tumbled as investors pulled money out of the safe-haven investment and poured it into stocks. The slump boosted the yield on the benchmark 10-year note to 3.78% from 3.54% late Thursday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar fell against the euro and gained against the yen.