Wall Street finds reason to rally

WASHINGTON — Wall Street finally found reason to rally Thursday, soaring on a report that the Bush administration was considering setting up a government agency to soak up bad loans and mortgages. But it was far from clear that the government had settled on any solution to the worst crisis on Wall Street in decades.

The Dow Jones industrial average rose 410 points, recording its biggest percentage gain in nearly six years.

A person with knowledge of the government talks said that the idea, patterned after the Resolution Trust Corp. set up in the aftermath of the savings and loan crisis of the 1980s, was just one idea on the table to address the crisis.

The person, speaking on condition of anonymity, said the talks had not narrowed to a single option, and that the RTC-style solution was not a certainty. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke were scheduled to meet with key congressional leaders late Thursday night.

Before the sun rose on Wall Street, the Fed said it would boost by as much as $180 billion the amount of cash it would supply to foreign counterparts that are short on dollars. For banks in the United States, the Fed supplied $105 billion in short-term loans later in the day.

For more than a year, investors around the world have watched with growing alarm as the U.S. economy, the world's largest, has struggled to right itself amid massive home foreclosures, many of them from mortgages issued to homeowners with bad credit.

The turmoil has swallowed three of Wall Street's five major investment banks — Bear Stearns, Lehman Brothers and Merrill Lynch. They've either gone out of business or been driven into the arms of another bank.

The Dow's gain of nearly 4 percent on Thursday sent the average back above 11,000 and nearly erased its losses from a day before.

But as the uncertainty wore on, investors continued to flock to Treasury securities, considered a haven in times of crisis. Worries about even the safest investments intensified as Putnam Investments abruptly closed a $15 billion money market fund because institutional investors had pulled their cash.

President Bush canceled fund-raising trips to Alabama and Florida to stay in Washington and huddle with Paulson and the heads of the Fed and the Securities and Exchange Commission.

In an appearance earlier in the day, the president acknowledged "serious challenges" in the markets and said: "The American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence."

Also on Thursday, Morgan Stanley scrambled to strike a major deal or raise more cash that will reassure investors and prevent more damage to its battered stock. Its CEO, John Mack, reached out to China's Citic Group overnight about a possible investment, according to a person familiar with the talks.

Morgan Stanley is also considering a combination with retail bank Wachovia Corp. and an investment from Singapore Investment Corp., one of the world's biggest sovereign wealth funds, said the person, who spoke on the condition of anonymity because the discussions were still ongoing.