Stocks and exchange traded funds (ETFs) extend their two week rally on good news within the two sectors that caused the biggest economic problems – banking and housing.

Today’s rally is supported by the government’s plan to help banks get rid of up to $1 trillion of bad assets of their books.  This is in addition to the Public-Private Investment Program, which will use $75 billion to $100 billion from the $700 billion TARP plan enacted last year, giving the government purchasing power of $500 billion, state Rebecca Christie and Robert Schmidt of Bloomberg.

In addition to getting rid of the bad assets, Secretary of Treasury Geitner’s plan includes the following:

  • It is heavily dependent on private investors to step up to the plate and buy up the assets.
  • Half of the Treasury’s funds will be placed into a “legacy loan program,” in which the Treasury provides half of the capital going to purchase a pool of loans from banks, with private fund managers putting up the rest. The FDIC will guarantee financing of up to six times the capital or equity provided for such deals.
  • The second half will go into a “legacy securities program,” which will generate prices for securities that were backed by mortgages, which are no longer traded because of a lack of confidence in the underlying prices in housing.
  • There will be five asset managers picked to manage the troubled assets, and will receive financial backing from the FDIC.

A housing report also came as good news even though prices fell sharply, giving traders encouragement that some of the glut overshadowing the industry is beginning to be lifted. Sales of previously owned homes rose unexpectedly in February, resulting from an increase in investors and first-time homebuyers purchasing homes in foreclosure at bargain prices. The iShares FTSE NAREIT Real Estate 50 (FTY), is up about 5.4% in intraday trading and down 35.6% year to date.

A combination of good news from Geitner and the housing industry sent the Dow Jones Industrial Average up about 4%, to hover around 7,576, in morning trading.

Kevin Grewal contributed to this article.

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