A vertigo-inducing day on Wall Street ended in euphoria as traders cheered reports that Treasury Secretary Henry Paulson has floated the idea of rescuing banks by creating a permanent agency to buy their toxic debt. 

The reports sent the blue chips up by more than 400 points and to their largest percentage gain in nearly six years. 

Today's Market

The Dow Jones Industrial Average jumped 410.03 points, or 3.86% to 11019.69, the Standard & Poor’s 500 added 49.64 points, or 4.29%, to 1206.22 and the Nasdaq Composite picked up 100.25 points, or 4.78%, to 2199.10. The FOX 50 rose 35.25 points, or 4.21%, to 873.41.

Wall Street saw one of its most volatile days in recent memory as the Dow swung wildly in a 600-point trading range.  The blue chips opened with a 200-point rebound but then quickly turned negative as credit fears swept Wall Street once again. 

“You go from [thinking] the world is coming to an end to believing things aren’t so bad. It’s a pretty massive swing both in terms of emotions and dollars," said Art Hogan, chief market strategist at Jefferies & Co. 

The gains erased an earlier selloff of more than 100 points and represent a huge rebound from Wednesday's 449-point selloff. For the week, the market is still in the red as the Dow plummeted 504 points on Monday, the largest one-day point loss since September 2001. 

“There’s no playbook for what we’re seeing right now. We’re audibling at the line of scrimmage.” Pete McCorry, equity trader at Keefe, Bruyette, Woods, told FOX Business.

The late-day rally was sparked by various reports that Paulson has been shopping around the idea of creating a modernized version of the Resolution Trust Corporation, an entity that was used to hold $394 billion worth of banks' bad assets during the Savings and Loan crisis in the late 1980s and early 1990s. The idea of a bailout sent financial stocks soaring, eventually closing the day nearly 8% higher. News of the RTC-like program was first reported by CNBC and Reuters. The White House declined comment on the matter. 

Various lawmakers have expressed support for such a program as a way to help banks get rid of toxic assets that are backed by risky mortgages. The frozen credit markets forced banks to keep the bad assets on their balance sheets and write down their values as the housing market deteriorated. The resulting losses for banks slammed Wall Street and the economy, making loans elusive for even credit-worthy individuals.

"This immediately solves the problem of illiquidity in the mortgage market. The government doesn't want to sit there and own mortgages but sometimes life is tough," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "It would be a huge plus for the financial community... It is a de-facto bailout in no uncertain terms." 

Financial stocks also benefited from new liquidity measures taken by the Federal Reserve and other central banks, which injected $180 billion into the fragile global financial system. Central bankers are hoping the flood of U.S. dollars will help thaw the ongoing credit crisis that slammed the markets this week.

Earlier in the day Wall Street was spooked when news broke that U.S. asset manager Putnam Investments closed its $15 billion Prime Money Market Fund when customers began pulling money. A day ago Reserve Primary Fund, a $62 billion money-market mutual fund, "broke the buck," becoming just the second fund ever to expose investors to losses.

Meanwhile, Wall Street is still trying to come to grips with a drastically altered financial landscape. 

Just days after American International Group (AIG) had to be rescued by the Federal Reserve and Lehman Brothers (LEH) filed for bankruptcy protection, reports swirled of possible merger partners for Morgan Stanley (MS). 

According to published reports, Morgan could seek a merger with Wachovia (WB) or receive a major investment from China Investment Corp. Morgan Stanley and Goldman Sachs (GS) are the only two remaining independent investment banks on Wall Street after Merrill Lynch (MER) agreed to sell itself to Bank of America (BAC) earlier this week. 

Also, Washington Mutual (WM) has reportedly put itself on the block as the nation's largest savings-and-loan struggles to navigate the credit crisis. Potential suitors for WaMu reportedly include Wells Fargo (WFC), JPMorgan Chase (JPM), HSBC (HBC) and Citigroup (C). 

Meanwhile, crude oil prices built on Wednesday's $6 surge, rising in consecutive sessions for the first time in three weeks. Boosted by a weaker dollar, crude ended 72 cents higher at $97.88 a barrel. During early trading crude briefly climbed back over $100 a barrel. 

Gold futures stayed hot following Wednesday's record one-day surge. After eclipsing $900 an ounce, the precious metal closed $46.10 higher to $893.20. 

Earnings season heated up on Thursday with bellwether FedEx (FDX) reporting in-line results before the markets opened. FedEx earned$1.23 per share on an 8% increase in revenue to $9.20 billion in its fiscal first quarter.

Data Dump

Wall Street had a muted reaction to the day's primary economic report from the Labor Department that showed initial jobless claims rose by 10,000 to 455,000 last week. Economists had expected claims to have declined to 440,000. Continuing claims, or people on unemployment benefits for more than four weeks, rose to a new high of 3.54 million people. 

Also, the Philadelphia Fed reported the first increase in its business index since November. The index rose to 3.8 in September from -12.7 a month ago. Wall Street had only been expecting a -10 reading. 

The Conference Board, a private research group, hinted at more economic trouble ahead in its leading indicators index. The group's index fell by 0.5% in August, a worse reading than the markets expected. 

Corporate Movers

State Street (STT), which plummeted more than 50% earlier in the session, recovered somewhat after it released a statement saying the net value of its Global Advisors' money-market funds have never declined below $1. State Street also said it has no plans to raise additional equity and has no unsecured exposure to Lehman, AIG, Morgan, Merrill, WaMu or Wachovia. Shares of other money market centers like Federated Investors (FII), Northern Trust (NTRS) and New York Mellon (BK) recovered as well.

Constellation Energy (CEG) agreed to sell itself to MidAmerican Energy, an energy provider owned by Warren Buffett’s Berkshire Hathaway (BRK) holding company. The deal values Constellation at $26.50 per share and is worth $4.7 billion in cash. Constellation put itself on the block this week after its shares plummeted on its exposure to Lehman Brothers.

Kraft Foods (KFT) received a big promotion on Thursday after Dow Jones added the food maker to the Dow Jones Industrial Average, the benchmark stock index. Kraft, which will be the only food maker on the Dow, will replace AIG when trading begins on Sept. 22. 

The New York Times Co. (NYT) soared after the newspaper publisher reported an 8.8% slide in total revenue in August amid a 14.1% fall in ad sales. However, the publisher of the namesake paper and the Boston Globe saw a rebound in Internet sales, which jumped 11% last month. Rival newspaper companies like Media General (MEG) and McClatchy (MNI) saw their shares rise also.

ConAgra (CAG), maker of Hunts tomato sauce and Hebrew National hot dogs, posted weaker-than-expected fiscal first-quarter earnings and cut its outlook. The company had adjusted-earnings of 23 cents a share on a 17% jump in revenue to $3.07 billion. Analysts were expecting 24 cents a share. Looking ahead, ConAgra sees full-year earnings of $1.50 per share, which is a penny higher than current estimates.

Global Markets

The global turmoil continued to spread as Japan’s Nikkei fell more than 4% in trading overnight, while Hong Kong’s Hang Seng plummeted a stunning 7% in trading before recovering.  In Russia, stock trading was suspended for the third consecutive session as Russian stocks basically went into a free fall.