Markets worldwide are reacting positively to a plan proposed to buy stocks in banks troubled by the financial crisis. It would be interesting to see the long term effects of this government involvement in the private sector… read on from AP:

Wall Street fluctuated but largely extended its big advance Tuesday as investors reacted enthusiastically to the U.S. government’s plans to spend $250 billion to buy stock in private banks. The Dow Jones industrial average rose about 120 points a day after its record 936-point jump.

Some profit-taking started creeping into the market after the Dow surged more than 400 points at the opening, and it was expected that some investors would take some money out of the market after such a massive gain.

Investors had snapped up stocks Monday in anticipation of the government’s plan. President Bush said Tuesday the government will use a portion of the $700 billion bailout to inject capital into the nation’s major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.

Investors are hoping extraordinary steps by government officials will help resuscitate stagnant credit markets.

The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.

“This begins to penetrate the core of the problem,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.

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