Investors have reignited Wall Street’s rally after hearing the government’s plan to help banks remove as much as $1 trillion in bad assets from their books.

Major stock indexes jumped more than 3 percent in morning trading Monday, including the Dow Jones industrial average, which rose 250 points. Financial stocks led the advance.

Stocks extended a two-week rally after the Treasury Department announced a plan to revive lending that would rely on the government’s $700 billion financial rescue fund, the Federal Reserve and the Federal Deposit Insurance Corp., as well as private investors.

The advance gained momentum after a surprise increase in sales of existing homes. Home prices fell sharply but traders were encouraged to see sales pick up rather than fall. That’s the second bit of good housing news over the past week — last Tuesday, the government issued a better-than-expected housing starts report.

But the prospect that banks might get help drove the market’s advance. The goal of the government’s plan is to buy toxic assets that are weighing on banks’ balance sheets and are hampering banks’ ability to resume more normal lending to consumers and businesses. The drop in lending has worsened and prolonged the recession.

The plan seeks to draw in private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases. The government will share the risks if the assets fall further in price.

“The actions that we’re getting from a policy standpoint are very helpful in removing the sand from the gears,” said Alan Gayle, senior investment strategist at RidgeWorth Investments. “That is going to be good for the financials.”

Citigroup Inc. jumped 19 percent, Bank of America Corp. added 16 percent. Even banks regarded as more sound posted big advances. JPMorgan Chase & Co. rose 13 percent, while Wells Fargo & Co. rose 11 percent.

In midmorning trading, the Dow rose 259.73, or 3.6 percent, to 7,538.11.

Broader stock indicators also surged. The Standard & Poor’s 500 index rose 28.18, or 3.7 percent, to 796.72, and the Nasdaq composite index rose 47.50, or 3.3 percent, to 1,504.77.

Monday’s advance is bolstering a more upbeat mood on Wall Street seen in the past two weeks. Stocks began rising after troubled banks told investors they had made money in the first two months of the year and after reports on retail sales and home building came in better than expected.

Copyright 2009 The Associated Press