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Saturday September 20, 1:00 AM Stocks soar in relief rally as govts step up rescue efforts Photo: AFP LONDON (AFP) - Global stock markets soared on Friday, driven by massive gains in the banks after the US government drafted plans to cordon off the debt and toxic investments at the heart of the global credit crunch. Dealers said the banks -- many posting gains of 30 and 40 percent -- were in focus as Washington and governments around the world stepped up their fight against the worst financial crisis in decades. The United States, Britain and Switzerland banned the short selling of shares in financial companies, so removing one of the main speculative weapons used against them in recent months to drive down their price. 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. Central banks meanwhile continued to offer funds to the money markets, aiming to take the pressure off banks needing to tap essential finance for their day-to-day operations. On Wall Street, stocks charged ahead, opening with a gain of 3.58 percent, having added 3.5 percent Thursday as news of the US government plan came through. The Dow Jones Industrial Average was up 3.79 percent at around 1615 GMT in a huge relief rally that dealers said looked more solid that previous upturns. "Wall Street appears to have turned the corner," said Fred Dickson at DA Davidson & Co. John Ryding at RDQ Economics said "the Treasury and the Fed have finally realized the depth and systemic nature of the crisis. We believe that these actions will constitute the wider firebreak that will contain the crisis." Morgan Stanley, which had complained about short sellers driving its shares lower as its future was called into question, showed a gain of 24 percent while troubled savings and loan Washington Mutual jumped 29 percent. Officials from the US Treasury, Federal Reserve and Congress met Thursday to discuss a "comprehensive approach" to the problems of bad assets at the root of the current credit crisis, Treasury Secretary Henry Paulson said. Paulson said Friday the plan would cost hundreds of billions of dollars. "We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem," he said ahead of more talks on details of the massive rescue effort. President George W. Bush meanwhile warned taxpayers they would bear a significant share of the cost during "a pivotal moment for America's economy. "Problems that originated in the credit markets and first showed up in the area of subprime mortgages have spread throughout our financial system. "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it." Dealers said that if there were some concern over the cost of bailing out the banking system, investors felt only relief that the authorities were ready to spend what it takes to solve the problem. "The combined efforts are so great ... 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," said CMC Markets dealer Matt Buckland. In London, the FTSE 100 index of leading companies rose 8.84 percent to 5,311.30 points. In Paris, the CAC 40 jumped 9.27 percent, its largest one-day gain, to 4,324.87 points, and in Frankfurt, the DAX was up 5.56 percent at 6,189.53 points. All three markets easily regained key support levels that had been breached earlier in the week in some of the most tumultuous trading on record. Among the banks, Switzerland's UBS, among the worst hit by the credit crunch, gained 33 percent and British bank HBOS, which was rescued by peer Lloyds TSB in a multi-billion dollar takeover Thursday was up nearly 30 percent. Gains in other banks were only marginally less. In Russia, where the markets had been closed for most of the past three days after the biggest falls since the 1998 financial crisis, stocks also rebounded, helped by gains elsewhere and direct government support. The main RTS index rose 22.39 percent and the MICEX shot up 28.69 percent. "The government has taken actions and been very effective in what they put in place," said Chris Weafer, chief strategist for the Moscow-based investment bank Uralsib. Elsewhere in Europe, gains were also substantial, with Switzerland up 6.07 percent, Italy ahead 8.55 percent and Spain up 8.71 percent. In Asia, Japanese share prices advanced 3.76 percent, Hong Kong jumped 9.6 percent, Shanghai was up 9.5 percent and Sydney put on 4.3 percent.