In late morning trading on Monday the Dow Jones Industrial Average was up 297.96 points, or 4.1 per cent, to 7,576.34 points, while European stocks also closed higher.
And the US received further positive economic news on Monday with the National Association of Realtors saying that sales of existing homes grew 5.1 per cent to an annual rate of 4.72 million last month from 4.49 million units in January - the largest sales jump since July 2003.
'Least worst option'?
|Geithner said the US was working to avoid passing costs to the taxpayer [Reuters]
On Monday Obama said that his economic team remained "very confident" that this latest effort to aid the US's ailing banks would work.
He also said that the US now had "one more critical element" in its efforts to combat its recession.
Timothy Geithner, the US treasury secretary, also said on Monday in a newspaper article that the plan was part of the US government's strategy to "resolve the [financial] crisis as quickly and effectively as possible at least cost to the taxpayer".
"We [must] strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants we need to do their part to get credit flowing to working families and businesses," he wrote in the Wall Street Journal.
The US treasury's plan comes at a crunch time for the US administration, as Obama prepares to meet fellow leaders of the world's top 20 economies at a financial summit in London on April 2.
The US president is also struggling to contain public anger over big bonuses paid by insurer AIG that has been bailed out with $180bn in taxpayer money.
Al Jazeera's Rosiland Jordan in Washington DC says the Obama administration considers the programme the "least worst option" of all the others they were discussing, exposing the US government to the least possible amount of risk rather than letting the slump continue and risking a second economic depression.
The US government has poured billions of dollars into US banks after many suffered huge losses following the subprime mortgage crisis and from global economic turmoil.
However, many still hold these "toxic" mortgage-related assets on their books, making the institutions reluctant to lend money to businesses and citizens.
"You cannot fix this problem by stuffing money into the banks"
James Galbraith, economist, University of Austin, Texas
Initially, the treasury will put $75bn to $100bn to launch the scheme, taking the money from the $700bn financial rescue bailout approved last October, alongside private capital.
The government money would be put alongside private capital and then leveraged up to $500bn, or possibly double that amount, with the help of the Federal Deposit Insurance Corporation, a US bank regulator, and the Federal Reserve.
Under the plan, the government will provide the lion's share of the funding to buy up the "toxic assets".
And private-sector purchasers will establish the value of the loans and securities purchased under the programme themselves to protect the government from overpaying for the assets.
However plan has been criticised by some economists, with James Galbraith, an economist and professor of government at the University of Texas in Austin, telling Al Jazeera the plan would not work as the problem itself had been "misconceived".
"This is not a blockage where our problem is the banks are unwilling to lend, this is a problem of deep depresson and collapse in asset values ... without addressing the underlying problems of employment, income and houshold incomes we're not getting out of this," he said.
"You cannot fix this problem by stuffing money into the banks. When it fails we're going to back where we started and we'll need to address those underlying issues."
And on Sunday Paul Krugman, a recent winner of the Nobel prize for economics, dismissed the move as "cash for trash" in a news article, saying it failed to address fundamental flaws in the US financial system.
"The Obama administration is now completely wedded to the idea that there's nothing fundamentally wrong with the financial system - that what we're facing is the equivalent of a run on an essentially sound bank," he wrote in a column for The New York Times on Saturday.
"And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: It won't be able to come back to congress for a plan that might actually work."
The latest developments have seen calls from members of the Republican party for Geithner to resign over what some view as his lacklustre performance.
Richard Shelby, the senior Republican on the senate's banking committee, said his confidence in Geithner was "waning every day".
"If he keeps going down this road, I think that he won't last long. I think he's probably on shaky grounds now, at least with the congress and a lot of the American people," he told Fox News Sunday.
But Obama has defended Geithner, saying in an interview with CBS television that he would not accept the treasury secretary's resignation, even if it was tendered.