Scrambling to ease the strain on the credit market, the Federal Reserve announced a $200 billion program on Tuesday that would allow financial institutions, including the nation’s major investment banks, to borrow ultra-safe Treasury money by using some of their riskiest investments as collateral. Wall Street responded with a rally, with the Dow Jones industrials surging 150 points.

This was the central bank’s second effort in a week to unfreeze the nation’s panicky credit markets, where investors have become too frightened to finance even conservative debt offerings, which in turn has caused a cash squeeze at seemingly solid financial institutions.

Stock markets soared after the announcement, with the Dow Jones industrials gaining 260 points before falling back to 11,925.85, a 185-point gain, at 12:30 p.m. as brightened investors snapped a three-day losing streak. The Standard & Poor’s 500-stock index was up 1.4 percent, and the Nasdaq composite index gained 1.5 percent.

The Fed normally lends Treasury securities to banks for just a few hours. Under the new program, money will be lent for 28 days and the central bank will accept nongovernment mortgage-backed securities — the source of the current crisis in the credit markets — as collateral. The Fed will require that the assets, which are linked to soured home loans, have a premium credit rating.

The new program, dubbed the Term Securities Lending Facility, will effectively allow strapped financial institutions to hand over potentially damaged securities to the government in exchange for either cash or easily traded Treasury securities, some of the safest in the market.

“If these institutions are able to extend out more credit as a result of this, it may take more pressure of the housing market and mortgage quality,” said Mark Zandi, chief economist at Moody’s Economy.com.

But Mr. Zandi said he was skeptical that the Fed’s actions would address the root of the current problems in the credit market.

“I don’t think it helps determine the appropriate price for these securities,” he said. “It doesn’t solve the underlying problem of mortgage delinquencies and defaults, which could at some time threaten the Triple-A securities.”

The Fed will lend the Treasuries through weekly auctions that begin March 27. The government will also accept mortgage-backed securities issued by government-sponsored companies like Scrambling to ease the strain on the credit market, the Federal Reserve announced a $200 billion program on Tuesday that would allow financial institutions, including the nation’s major investment banks, to borrow ultra-safe Treasury money by using some of their riskiest investments as collateral. Wall Street responded with a rally, with the Dow Jones industrials surging 150 points.

This was the central bank’s second effort in a week to unfreeze the nation’s panicky credit markets, where investors have become too frightened to finance even conservative debt offerings, which in turn has caused a cash squeeze at seemingly solid financial institutions.

Stock markets soared after the announcement, with the Dow Jones industrials gaining 260 points before falling back to 11,925.85, a 185-point gain, at 12:30 p.m. as brightened investors snapped a three-day losing streak. The Standard & Poor’s 500-stock index was up 1.4 percent, and the Nasdaq composite index gained 1.5 percent.

The Fed normally lends Treasury securities to banks for just a few hours. Under the new program, money will be lent for 28 days and the central bank will accept nongovernment mortgage-backed securities — the source of the current crisis in the credit markets — as collateral. The Fed will require that the assets, which are linked to soured home loans, have a premium credit rating.

The new program, dubbed the Term Securities Lending Facility, will effectively allow strapped financial institutions to hand over potentially damaged securities to the government in exchange for either cash or easily traded Treasury securities, some of the safest in the market.

“If these institutions are able to extend out more credit as a result of this, it may take more pressure of the housing market and mortgage quality,” said Mark Zandi, chief economist at Moody’s Economy.com.

But Mr. Zandi said he was skeptical that the Fed’s actions would address the root of the current problems in the credit market.

“I don’t think it helps determine the appropriate price for these securities,” he said. “It doesn’t solve the underlying problem of mortgage delinquencies and defaults, which could at some time threaten the Triple-A securities.”

The Fed will lend the Treasuries through weekly auctions that begin March 27. The government will also accept mortgage-backed securities issued by government-sponsored companies like Fannie Mae and Freddie Mac.

Last week, the central bank said it would offer up to $100 billion through a new auction program that allows financial firms to take out loans at wholesale rates.

On Tuesday, the Fed also increased currency swap lines with the European Central Bank and the Swiss National Bank, to $30 billion and $6 billion. That is an increase of $10 billion for the European Central Bank and $2 billion for the Swiss bank.

-TheNewYorkTimes

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