NEW YORK - December 31, 2008 - The worst annual performance for Wall Street stocks since the Great Depression ended with a modest rally on the final day of trading as the Federal Reserve pushed ahead with its plan to buy mortgage-backed securities.

The central bank’s plan to buy up to $500bn of mortgage bonds by the middle of 2009 helped spur a 1.4 per cent gain on the day for the S&P, which finished 2008 at 903.25.

The Dow Jones Industrial Average and Nasdaq Composite Index added 1.3 per cent to 8,776.39 and 1.7 per cent to 1,577.03, respectively. Volumes were thin as many traders remained away from their desks ahead of the New Year holiday.

For the year, the S&P 500 dropped 38.5 per cent, marking its worst run since a marginally higher drop of 38.6 per cent in 1937. The Dow lost 33.8 per cent, its worst annual decline since the index fell 52.7 per cent in 1931.

“It was beyond most people’s comprehension that such a thing could happen,” said Marc Pado, chief market strategist at Cantor Fitzgerald. “No one thought the short-term could be this destructive.”

The financial sector was the worst performing, down 57 per cent overall, in a year in which several institutions ended up part-owned by the state to prevent a collapse of the system.

Some equity was all but wiped out, such as that of Lehman Brothers, whose collapse in September sent shockwaves throughout financial markets across the globe.

Shares in other banks that survived without a forced sale or bankruptcy nevertheless sustained losses of epic proportions.