NEW YORK (AP) — Stocks rallied Thursday as investors, while unimpressed by sluggish retail sales, bet that companies hurt by the housing crisis will benefit from a government plan to help homeowners with their mortgages and another possible interest rate cut.

The Dow Jones industrial average surged more than 100 points after a nearly 200-point rise Wednesday.

Wall Street has been concerned about the housing slump's impact on consumers, and was disappointed by lackluster sales and a downbeat December outlook from Target Corp. However, a weak consumer supports the argument for an interest rate cut when the Federal Reserve meets Tuesday, which could help reinvigorate the slowing economy and loosen up the tight credit markets.

Banks, brokerages, lenders and homebuilders got an additional boost as President Bush announced a plan allowing some homeowners facing foreclosure to not only freeze their interest rates for up to five years, but also refinance their mortgages. The plan was worked out between the Treasury Department, mortgage lenders and banks, and could help about 1.2 million homeowners, Bush said.

"That's providing a glimmer of hope," said Jim Herrick, director of equity trading at Baird & Co. "But there's some skepticism. Is this really going to be the panacea to the subprime market? That's the $64,000 question."

Even Treasury Secretary Henry Paulson said the plan was not a "silver bullet."

The Mortgage Bankers Association said foreclosures hit a record high in the third quarter. The fallout from the crisis has weighed on the financial services sector this year, with banks and brokerages writing down some $80 billion worth of securities tied to mortgages.

Royal Bank of Scotland Group PLC, the U.K.'s second-biggest bank, on Thursday reported it suffered $3 billion in writedowns caused by slumping credit markets, and Merrill Lynch analysts lowered their profit estimates on a batch of banks.

In late afternoon trading, the Dow rose 151.28, or 1.13 percent, to 13,596.24.

Broader stock indicators also extended their gains. The Standard & Poor's 500 index rose 17.96, or 1.21 percent, to 1,502.97, and the Nasdaq composite index rose 34.60, or 1.30 percent, to 2,700.96.

Bond prices fell as investors returned to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, rose to 4.00 percent from 3.95 percent late Tuesday.

Countrywide Financial Corp., the nation's largest mortgage lender, rose $1.17, or 11 percent, to $11.59, on the government mortgage rate plan.

"Investors are having a collective sigh of relief that this is a positive signal the housing crisis and credit credit crunch will not cause the end of this bull market," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors.

But the stock market has been volatile since the summer, jumping on signals that the worst of the credit crisis is over and then plunging on hints that it could persist well into next year. With the Fed's meeting next week and investment bank fourth-quarter earnings around the corner, there remains an undercurrent of nervousness on Wall Street.

"We get this newfound optimism, a shot in the arm, of confidence, and then the rug gets pulled out from under us — that's been our experience for the last three months, four months," Johnson said. "There's no question that there still is a very high level of uncertainty, caution, worry, that confidence in the stock market has not been rebuilt."

Consumer spending appears to be suffering from as home prices have sunk and gas prices have risen.

Target Corp. fell $4.58, or 7.6 percent, to $55.56, after saying December sales will fall short of its previous forecast. J.C. Penney Co. fell $1.44, or 3.1 percent, to $44.40 after reporting November sales that were below expectations.

Investors remain on the lookout for signs that the Federal Reserve will reduce rates when policymakers meet on Tuesday, but they also want to see that the economy is not headed for recession.

Ahead of Friday's report on November payrolls and unemployment, the Labor Department said the number of U.S. workers filing new claims for unemployment benefits fell as expected last week. Still, the four-week average hit a two-year high, suggesting a softening job market.

The Fed might take a cue from overseas after the Bank of England cut its key interest rate to 5.5 percent from 5.75 percent on Thursday. The European Central Bank kept its rates on hold.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 941.9 million shares.

Crude oil rose $3.07 to $90.56 a barrel on the New York Mercantile Exchange.

The dollar was mixed against other major currencies, while gold prices slipped.

Overseas, Japan's Nikkei stock average rose 1.70 percent, while Hong Kong's Hang Seng index rose 0.73 percent. Britain's FTSE 100 fell 0.13 percent, Germany's DAX index fell 0.05 percent, and France's CAC-40 rose 0.26 percent.