Stocks Soar Worldwide on Bank Bailout, Curb on Short Sales

By Sarah Jones

Sept. 19 (Bloomberg) -- Stocks surged, sending benchmark indexes in the U.K. and China to their biggest gains on record, after the U.S. Treasury and Federal Reserve announced plans to halt the credit-market seizure and British and American regulators cracked down on short sellers.

UBS AG, the European bank hardest hit by the subprime crisis, climbed 32 percent. Macquarie Group Ltd., Australia's largest investment bank, soared 38 percent after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed removing troubled assets from the balance sheets of financial companies. Barclays Plc advanced 31 percent as the U.K.'s Financial Services Authority banned speculators from betting against financial shares until Jan. 16.

Europe's Dow Jones Stoxx 600 Index rose the most since data for the index began in 1987, adding 7.3 percent to 275.53 at 1:15 p.m. in London, while the U.K.'s FTSE 100 Index posted a record advance of 8.3 percent. Russia's RTS Index jumped 20 percent after a two-day suspension and President Dmitry Medvedev's pledge of $20 billion to prop up the market. Futures on the Standard & Poor's 500 Index climbed 4.1 percent, and the MSCI Asia Pacific Index rebounded 4.8 percent from a three-year low. China's CSI 300 Index increased 9.3 percent, the most since the measure was created in 2005.

``At the start of the week, equity investors weren't just facing a loss but an absolute loss,'' said Gary Dugan, London- based chief investment officer for Europe at Merrill Lynch Global Wealth Management, which oversees $2 trillion. ``Now what they are saying is every financial institution is virtually underwritten by this proposal to drop those assets into a life boat.''

Lehman, AIG

The MSCI World Index is still down 3 percent this week after Lehman Brothers Holdings Inc. filed for bankruptcy, the U.S. government seized control of American International Group Inc. and Merrill Lynch & Co. was forced to sell itself to Bank of America Corp. More than $500 billion in credit losses and writedowns at banks have pushed the global economy toward a recession.

U.S. Treasuries and European government bonds fell today on speculation Paulson and Bernanke's plan will increase demand for stocks over bonds. The Treasury also announced a $50 billion program to insure the holdings of money-market mutual funds for a year.

The dollar rose the most in more than five months against the yen, while the cost of default protection on corporate bonds dropped by the most since the bailout of Bear Stearns Cos. in March.

`Arms Around'

``This resolution will get its arms around the entire financial sector and allow them to no longer be an anchor on the rest of the economy,'' said Neil Dwane, chief investment officer for Europe at Allianz Global Investors' RCM unit, where he helps oversee $65 billion. ``For sentiment the worst could be over for financials.''

UBS added 32 percent to 21 francs. Deutsche Bank AG, Germany's largest bank, jumped 17 percent to 58.76 euros, while Credit Suisse Group, Switzerland's second-biggest bank, climbed 17 percent to 55.45 francs.

HBOS Plc gained 39 percent to 240.75 pence, trimming its weekly decline to 15 percent. Barclays rose 32 percent to 397 pence, leaving it with a 13 percent gain for the week. Lloyd's TSB Group Plc, the U.K.'s biggest provider of checking accounts, advanced 35 percent to 320.5 pence.

Short Selling Bans

The U.K. Financial Services Authority said today its ban on short selling of financial shares will apply to 29 companies including HBOS and Barclays.

Ireland's financial regulator also banned short selling of the country's banking stocks to ``ensure the orderly conduct of the market,'' following the move by its U.K. counterpart. Bank of Ireland Plc gained 38 percent to 5.20 euros amid speculation Spain's Banco Santander SA may bid for the country's second biggest bank.

``Bank of Ireland notes recent media speculation and categorically confirms that it has not received an approach from, nor entered into discussions with, Banco Santander or any other party,'' Bank of Ireland said in an e-mailed statement.

Macquarie, whose shares have lost half their value this year, climbed a record 38 percent to A$35.90. The Australian Securities Exchange also said it will abolish so-called ``naked'' short selling from the start of next week.

Shares in China

Bank of China, the nation's second-biggest bank, jumped 10 percent to 3.36 yuan. A 24 percent slump in the month through yesterday left it valued at a record low of 10.5 times profit.

China's government said it will buy shares in three of the largest state-owned banks and scrapped the tax on share purchases.

Morgan Stanley, the second-biggest U.S. securities firm, advanced 29 percent to $29 in New York as the U.S. Securities and Exchange Commission temporarily banned short-selling in shares of 799 financial companies to curtail the market rout.

Morgan Stanley's Chief Executive Officer John Mack told employees this week investors betting on a decline in the firm's shares are ``driving our stock down.'' The company yesterday snapped seven days of losses, rising 3.7 percent.

Goldman Sachs Group Inc., the biggest U.S. securities firm, and Morgan Stanley are seeking to avoid the sort of run on their shares that helped trigger emergency sales of Merrill and Bear Stearns Cos., and the Sept. 15 bankruptcy by Lehman, once the fourth-biggest. Goldman gained 26 percent to $136.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.