World stocks rocket as governments step up rescue efforts

LONDON (AFP) - - Global stock markets soared on Friday, driven higher by massive gains in the banks as governments worldwide stepped up their fight against the worst financial crisis in decades, traders said.

The US government said it was putting together a comprehensive plan to ring fence the mountains of bad debt that have weighed down banks in the past year.
In another move, the US financial watchdog, the Securities and Exchange Commission, banned the short selling of shares in financial companies -- a move designed to remove one of the speculative pressures on the firms.
Short-selling is when an investor borrows a stock or investment instrument and sells it on the belief it will fall in price, allowing them to buy it back later more cheaply and so make a profit.
The European Central Bank and Bank of England meanwhile offered an additional 40 billion dollars (28 billion euros) to financial institutions struggling to obtain funds amid a worldwide squeeze on credit.
On Wall Street, stocks charged ahead, opening with a gain of 3.58 percent, having added 3.5 percent Thursday on news the US government was preparing a master plan to tackle the failing property assets at the heart of the crisis.
Officials from the US Treasury, Federal Reserve and Congress met to discuss a "comprehensive approach" to rid financial institutions of bad assets at the root of the current credit crisis, Treasury Secretary Henry Paulson said.
Reports said he was considering a bailout by taxpayers like that used in the savings and loan crisis of the 1980s.
"Overnight, the game changed," said John Wilson at Morgan Keegan.
"We hope this is the beginning of something major," he added, as stock markets soared around the world after days of some of the most tumultuous trade ever seen.
In London, the FTSE 100 index of leading shares was up more than nine percent, Paris added 7.54 percent and Frankfurt put on more than five percent.
British bank HBOS, which was rescued by peer Lloyds TSB in a multi-billion dollar takeover Thursday, saw its share price spike 39 percent -- a gain mirrored by its peers throughout Europe on Friday.
"The creation of a huge government sponsored vehicle to take on so-called toxic investments in the US, short selling restrictions in the UK and incentives to encourage investing in equities in China are all having a positive effect on markets," said CMC Markets dealer Matt Buckland.
"The combined efforts are so great that there seems to be a coherent belief that this could actually be sufficient to draw a line under what has been a tumultuous 18 months for the markets."
Hong Kong shares closed up 9.6 percent on Friday as markets across Asia rallied on the news that Washington would throw banks a lifeline to deal with bad debts.
The Shanghai market soared by nearly 9.5 percent, also after China abolished a tax on stock transactions, hoping to reverse a slide on the bourse that threatened to affect millions of middle-class Chinese.
Tokyo closed up 3.76 percent.
"The rally is a combination of a knee-jerk reaction to the reports of the new rescue plan and a mere tracking of movement on Wall Street," said Seiichi Suzuki, market analyst at Tokai Tokyo Securities.
"Market participants are also looking at key futures indexes on Wall Street, because it is hard for players in Asia to digest fully the impact of the latest developments related to the global credit crisis," he added.
Investors took encouragement from emergency meetings in Washington on the financial crisis set off by risky housing loans to "subprime" customers who now cannot make mortgage payments.
The US government was reportedly preparing to create a new entity to rescue troubled financial firms. Washington this week let Wall Street titan Lehman Brothers collapse, sending global markets into a tailspin.
"Such a plan would potentially provide a long-term solution to the credit crisis," said John Kyriakopoulos, a strategist at National Australia Bank Capital.
Central banks worldwide have this week pumped hundreds of billions of dollars into money markets left severely unsettled by the collapse of Lehman Brothers and the rescues of US investment bank Merrill Lynch and insurance giant AIG