Wall St surges on hopes of easing credit crunch

By Justin Grant

NEW YORK (Reuters) - U.S. stocks jumped on Thursday, capping a tumultuous week, on optimism that giving Fannie Mae and Freddie Mac a bigger role in the mortgage market will ease a credit crunch that claimed Bear Stearns BSC.N as its biggest victim.

Stocks closed out their best week in nearly two months on the strength of financial shares, which bore the brunt of investors' wrath since the credit crisis unfolded last summer. The benchmark Standard & Poor's 500 gained 2.4 percent for the day and rose 3.2 percent for the week.

Fannie Mae (FNM.N) and Freddie Mac (FRE.N) delivered eye-popping gains for a third session, each rising more than 50 percent since Monday. Meanwhile, major banks such as Bank of America (BAC.N), JPMorgan (JPM.N) and Citigroup (C.N) rose between 8 percent and 10 percent each on Thursday, while the Dow Jones index of home building stocks .DJUSHB soared 8.3 percent.

Industrial heavyweight General Electric (GE.N) helped lead the Dow higher with a 5.3 percent gain to $37.49 after Merrill Lynch raised its rating on the stock as a safe bet in a slowing economy.

A second day of plunging oil and gold prices helped ease fears of inflation getting out of control, spurring gains across the board. Energy-sensitive sectors such as airlines and consumer discretionary companies gained about 3 percent.

Financial "stocks are moving inversely to what's been going on in the commodities markets with commodities prices falling in the last couple of days," said Matt Kaufler, portfolio manager and equity analyst at Clover Capital Management, in Rochester, New York.

"And the overarching assumption to all of this being that the worst of it is likely behind us."

The Dow Jones industrial average .DJI gained 261.66 points, or 2.16 percent, to 12,361.32. The Standard & Poor's 500 Index .SPX