The NASDAQ also finished up 74 points at 2,273.
President Bush said that rescue plan will cost taxpayers billions of dollars. However, Bush says it's what has to be done to turn the economy around.
After another round of late-night brainstorming there is finally a plan to save the financial system. The details aren't final, but it will be the largest bailout package in history, with a price tag to match.
"Given the precarious state of today financial markets and their vital importance to the daily lives of American people, government intervention is not only warranted, it is essential," said President Bush.
In an effort to break out from the worst credit crisis since the Great Depression, the government wants to create an agency that will buy all the bad loans currently dragging down the financial system.
"Until we get stability in the housing market, we are not going to get stability in our financial markets," said Treasury Secretary Henry Paulson. "We've worked with Congress on a number of the steps, all of which were important leading up to this. But this is a way that we stabilize the system and get at the root cost."
The Bush Administration wants to remove questionable mortgage loans from the financial system so banks can now make "good loans" and get the economy moving again.
While this comprehensive plan sent the stock markets soaring, taxpayers will be picking up a hefty bill that could approach $1 trillion. Paulson calls it cheaper than the alternative.
"I am convinced that this bold approach will cost American families far less than the alternative. A continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," said Paulson.
The Treasury Department is expected to work on a legislative plan over the weekend and ask congress to take action next week.
In the meantime the Securities and Exchange Commission has temporarily banned "short selling," a practice of betting against company stocks to give investment houses some breathing room.
Eyewitness News Reporters Leslie Miller and Subha Ravindhran contributed to this report.