NBC News reported Geithner will be nominated on Monday to replace Henry Paulson as Treasury Secretary. The report came in the final hour of trading and turned what looked to be a small daily decline into a huge rally.

The Dow Jones industrial average closed up 494 points, or 6.5%, to 8046, the S&P 500 closed up 48 points, or 6.3%, to 800 and the Nasdaq closed up 68 points, or 5.2%, to 1384. In Canada, the S&P/TSX composite index closed up 413 points, or 5.6%, to 8137.

Geithner, who is the current head of the New York Fed, was among the leading candidates for the position, so the nomination came as no surprise. Market watchers say part of the rally in stocks was because some uncertainty was removed but the move was exaggerated by short covering.

"You've given the market a little certainty. Geithner seems like a solid guy and Obama is picking people that have been around so that's a good sign," said James Vola, fixed income strategist at IFR.

Marc Zabicki, senior market strategist at Ameriprise Financial, said the market was due for an oversold bounce.

"Any rally has to be viewed with skepticism at this point," he said. "There is so much poor sentiment for this market to work through that I expect any small rally could be met with more selling in subsequent days."

On the week, the Dow closed down 5.3%, the S&P 500 fell 8.4%, the Nasdaq composite lost 8.7% and the TSX fell 9.4%.

The focus now turns to the week ahead, where economic data is expected to continue to deteriorate and the U.S. government will release preliminary estimates for third-quarter GDP, which is expected to show -0.5% growth. But market watchers say the real contraction began in the fourth quarter. On Friday, Goldman Sachs lowered its estimate for Q4 growth to -5.0% - the worst since 1982. In a research note, Wachovia economists said they're likely to lower their -3.6% projection.

"We had been assuming the November data would post a slight rebound following October's plunge. Those hopes appear to have been dashed, however, as economic conditions continue to deteriorate. Most of this week's reports came in worse than expected and it is now abundantly clear that fourth-quarter real GDP will decline more than even our most recent forecast projected," they said.

John Rothfield, senior currency strategist at Bank of America, said it's difficult to anticipate which direction the global risk trade will take over the weekend.

"It's very hard to anticipate. There's no reliable leading indicator of where risk aversion is headed," he said.

Market watchers say they will be closely following the unfolding saga at Citigroup for clues. Shares of the financial institution, which recently was the largest revenue generating bank in the world, were crushed again on Friday. They closed down 20% after a record 26% drop on Thursday.

The Wall Street Journal has reported that Citigroup is asking legislators to institute a ban on naked short selling.

"We can't figure out why they haven't done it," said IFR's Vola.

Perhaps owing to continued worries about the economy, the last-minute rally in stock markets didn't extend to fixed income and foreign exchange. For much of November, all asset classes have been moving in tandem on the ebbs and flows of risk aversion.

In foreign exchange, the Canadian dollar closed nearly two cents higher, just above its four-year low. Strategists say it will break through the recent lows if equities and oil continue to sell off on worries about a global slowdown.

The Canadian dollar was up 0.0178 to 0.7892 against the U.S. dollar (1.2674 USD/CAD) and up 3.49 to 75.73 against the yen.

The U.S. dollar was up 2.18 to 95.89 against the yen and the Dollar Index was up 0.222 to 88.191.

The euro was up 0.0135 to 1.2589 against the U.S. dollar, down 0.0103 to 1.6051 against the Canadian dollar, lower by 0.0003 to 0.8453 against the pound sterling and was higher by 3.86 to 120.55 against the yen.

The pound sterling was up 0.0143 to 1.4871 against the U.S. dollar and down 0.0122 to 1.8976 against the Canadian dollar.

Crude oil was up 73 cents to $50.15 per barrel and gold surged $52.30 to a one-month high of $801.00 per ounce.

Treasury yields sold off after an enormous long-end rally earlier in the week. Most of Friday's rise in yields came in the overnight session and there was no noticeable reaction to the nomination of Geithner for Treasury Secretary.

U.S. two-year yields were up 10.4 bps to 1.08%, with five-year yields up 12.0 bps to 2.01%, 10-year yields up 17.9 bps to 3.19% and 30-year yields up 19.5 bps to 3.68%. The Eurodollar March 09 contract was down 10.0 ticks to 98.14. The yield curve was steeper, with the 10/2-year spread up 7.5 bps to 210.74 bps.

Yields on two-year Canadian government bonds were up 2.4 bps to 1.81%, with five-year yields up 4.6 bps to 2.58%, 10-year yields up 11.7 bps to 3.48% and 30-year yields up 12.0 bps to 4.06%. The December 08 BAX contract was flat at 98.08.

In Germany, returns on two-year German bonds were up 4.0 bps to 2.09%, with five-year yields up 3.7 bps to 2.66%, 10-year yields down 1.1 bps to 3.39% and 30-year yields down 0.6 bps to 4.01%.

Yields on UK two-year bonds were down 1.7 bps to 1.98%, with five-year yields down 4.1 bps to 3.03%, 10-year yields down 3.1 bps to 3.86% and 30-year yields down 10.4 bps to 4.21%.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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