A broker talks on a cellphone at a brokerage firm in Hong Kong as the city's main stock index surged more than 9.6 per cent on Friday. (Kin Cheung/Associated Press)

Stock markets in Canada and the United States soared Friday with news of a U.S. government bailout of ailing financial institutions on Wall Street that could cost more than half a trillion dollars.

At the end of trading in Toronto, the TSX composite index was up a startling 848 points, or slightly more than seven per cent, to finish the week at 12,912.99.

In New York, the Dow Jones was up 368.75 points, or 3.35 per cent, to close Friday at 11,388.4.

Investors piled into both markets as word broke overnight that Washington was going to try to solve the growing financial crisis on Wall Street by taking over large portions of the almost-worthless asset-backed commercial paper weighing down corporate balance sheets.

A working weekend for U.S. leaders

In Washington, congressional leaders and officials vowed to work through the weekend if necessary to put together a package of measures to stave off the crisis.

Treasury Secretary Henry Paulson, a former chief executive officer at the investment bank Goldman Sachs, told journalists that a successful bailout would be expensive, but to do nothing would be far more costly.

The plan "must be finely designed and sufficiently large to have maximum impact," Paulson said

The U.S. government has already injected hundreds of billions of dollars into the market, as well as taken over giant financial firms such as the mortgage companies Fannie Mae and Freddie Mac, and the insurance conglomerate American International Group.

The U.S. Federal Reserve and other central banks have been putting money into the banking system all this week, but the pessimism of investors continued until Thursday afternoon when news of the latest bailout began to emerge.

'Time is of the essence.'—Representative Nancy Pelosi

Appearing on U.S. television morning shows on Friday, the head of the Senate banking committee, Chris Dodd, said the U.S. may be "days away from a complete meltdown of our financial system," and Congress is working quickly to prevent that.

The ranking Republican on the committee, Senator Richard Shelby, said the new bailout plan could cost at least half a trillion dollars.

Shelby said U.S. markets have been "been lurching from one crisis to another." Both leaders promised cross-party co-operation to approve the plan.

"We hope to move very quickly. Time is of the essence," said Nancy Pelosi, speaker of the House of Representatives.

Paulson, along with U.S. Federal Reserve chair Ben Bernanke, went on to meet U.S. President George W. Bush late Thursday for further discussions on the plan.

Wild week

If you had spent this past week on a mountain top, you would be staring at a TSX which gained 1.1 per cent compared with last Friday's close of 12,912 and wondering why there were high-fives all round on Wall Street and Bay Street today.

But investors have not experienced such a gut-wrenching five days on the two stock markets in many years.

Monday opened with markets tumbling after the announcement that investment house Lehman Brothers had slipped into bankruptcy and Merrill Lynch & Co. had been taken over by Bank of America, in an effort to avoid Lehman's fate.

Then on Tuesday came word that one of the world's biggest insurers, American International Group Inc., was facing financial ruin, staring at billions in writeoffs related to its holdings of asset-backed commercial paper.

The same day, the U.S. Federal Reserve stepped in to take over AIG in an $85 billion US deal.

The remainder of the week was rife with rumours that other financial service companies, such as Wachovia and the country's biggest savings and loan Washington Mutual Inc., needed to find their own corporate white knights or else face bankruptcy.

Central banks around the world spent the week pumping an unprecedented amount of liquidity, upward of half-a-trillion dollars US, into the global lending pool.

Finally, Friday's bombshell, that Washington was going to bail out these troubled corporations, sent investors back to the phones to snap up share issues at rock-bottom prices.

In Toronto, the industrial sub index gained 5.5 per cent, financial companies were up 5.7 per cent and energy issue rose a hefty 8.9 per cent.

Lost in the euphoria on Wall Street, oil rose $6.67 US to $104.55, the second-largest one-day price rise in dollar terms on record.

With files from the Associated Press