WASHINGTON — Stocks rallied strongly Friday after Treasury Secretary Henry Paulson and top elected officials pledged to expedite a rescue plan for the nation's troubled financial sector.
The Dow Jones industrial average gained 368.75 points, or 3.35 percent, erasing the week's losses. Other major indexes also gained 3 percent to 4 percent.
House Speaker Nancy Pelosi said the House would stay in session past its scheduled adjournment next week if needed to deal with the crisis. "We are committed to quick, bipartisan action," she said.
That assurance, and new measures announced earlier Friday to grease the nation's financial wheels, helped propel the rally in stocks.
After watching the credit market grind to a near standstill, the government said it would lift the financial sector by taking on the bad debts of troubled banks, propping up money-market mutual funds and temporarily banning short-selling of financial stocks.
The rescue could involve government guarantees worth hundreds of billions of dollars, Paulson said. "This needs to be big enough to make a real difference," he told reporters Friday morning.
"I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," he said.
In a brief appearance later Friday morning, President Bush reiterated that the action is necessary. "These measures will require us to put a sig-
nificant amount of taxpayer dollars on the line," Bush said. "This action does entail risk, but we expect that this money will eventually be paid back."
Paulson said he, along with Federal Reserve Chairman Ben Bernanke, would work with members of Congress throughout the weekend to craft a pro posal, which he referred to as a "troubled asset relief program."
It was whirlwind weekThe government's actions cap a dramatic week in which Lehman Brothers was forced into bankruptcy, Merrill Lynch was quickly acquired by Bank of America, and American International Group accepted a $85 billion government loan to avoid bankruptcy.
Lawmakers have said they will work quickly to pass a plan, which probably will provide a way for financial companies to get troubled assets off their books. Congress is scheduled to adjourn for the year at the end of next week.
Among the actions taken Friday to unfreeze markets:
• The Treasury Department said it would temporarily insure money market mutual funds up to $50 billion for firms that pay a fee to participate in the government program.
"Concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets," Treasury said.
• The Federal Reserve said it would lend money to banks to buy high-grade, asset-backed commercial paper from money market mutual funds. That will give them cash to handle redemptions by clients.
The Fed will assume the risk for the loans, meaning if they are not paid back, the central bank will lose. That said, senior Fed staffers Friday said they do not expect that to happen.
• The Securities and Exchange Commission temporarily halted short-selling in the stocks of 799 financial companies to "protect the integrity and quality of the securities market and strengthen investor confidence," the agency said. Short-selling is making a bet that the stocks will fall. The practice has been blamed for accelerating declines in financial stocks, or worse, forcing companies into bankruptcy or mergers.
• The Treasury Department said Fannie Mae and Freddie Mac would increase purchases of mortgage-backed securities, providing fresh money to mortgage lenders.
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