Markets’ message: Give us a financial rescue that works

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If Wall Street wanted to keep the pressure on world leaders for another huge government-led bailout of the global financial system, maybe the rally in the final hour today wasn’t the right strategy.

Nonetheless, hope for a rescue that will finally turn the tide helped pull stocks up sharply from their lows. Some market sectors even scored significant gains for the day, although they barely made a dent in the week’s losses.

The Dow Jones industrials finished off 128 points, or 1.5%, at 8,451.19, after being down as much as 695 points, or 8.1%, at the start of trading.

So we were on our way to Black Friday -- for about six minutes. That was followed by a rally that briefly lifted the Dow into positive territory (up about 90 points), then another sell-off, then a major rally in the final hour, then another pullback.

Just another day of insane volatility, except this one was even more insane than usual: The Dow’s intraday swing spanned 1,006 points from its low to its high -- the first time that has ever happened.

For the week, the Dow lost 18.2%, the biggest percentage drop in the index’s 112-year history. The New York Stock Exchange composite plunged 19.5%.

‘It’s got to end somewhere,’ said Michael Mainwald, head of trading at Lek Securities in New York.

But whether this was it -- with the Dow, at its low for the day, off 44.3% from its record high one year ago this week -- only the market knows for sure. And it isn’t giving many clues.

A rally in bank stocks set the tone for the day’s recovery, traders said: Everybody was expecting the Group of 7 industrialized nations this weekend to put forth some new package of fixes for global credit markets, which remain largely frozen.

Banks could be the major beneficiaries of any new moves. Treasury Secretary Henry M. Paulson said after trading ended today that the U.S. would move ahead with a plan to inject capital directly into banks and other financial institutions, taking non-voting shares in return. This would be part of the $700-billion bailout Congress approved last week.

In regular trading, JPMorgan Chase & Co. jumped $4.96 to $41.64; Citigroup rose $1.18 to $14.11.

Awaiting concrete action by policymakers, financial institutions and other investors continued to hoard cash early today. The annualized yield on three-month Treasury bills sank to 0.19% from 0.52% on Thursday as buyers swarmed.

Many analysts believe that G-7 finance chiefs have gotten the message, after the mammoth losses in stock markets worldwide this week. Yet the statement policymakers put out this afternoon was filled with generalities. Markets will want something more specific -- or else.

‘The G-7 has to come up with some really new and profound ideas for lubricating the world’s banking system and restoring the flow of credit to the private sector,’ said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.

‘Otherwise, the ensuing liquidity trap will lock up the world economy and throw us into a depression within a matter of days and weeks, not months or years.’ (UPDATE: Weinberg did use the word ‘depression.’ In my original post here I said ‘recession,’ but that was my mistype.)

See economist Nouriel Roubini’s proposals for massive government intervention in this earlier post.