* MSCI world equity index rises 2.9 percent to 310.53
* U.S. announces money market funds plan, more plans to come
* U.S., UK, and other regulators ban short selling of banks
* European stocks soar, dollar up; U.S. stocks seen higher
By Carolyn Cohn
LONDON, Sept 19 (Reuters) - The dollar jumped and U.S.
stocks looked set for a bumper opening on Friday as a U.S. plan
for money market funds and a global ban on short selling calmed
nerves ahead of an expected Washington package to mop up toxic
assets.
U.S. Treasury Secretary Henry Paulson and Federal Reserve
Chairman Ben Bernanke intend to work through the weekend on a
plan to deal with mortgage-related assets that are choking the
financial system.
The Treasury also said it will use $50 billion to back money
market mutual funds whose asset values fall below $1 in another
step to contain financial turmoil.
Meanwhile, the U.S. Securities and Exchange Commission
temporarily halted the short selling of financial stocks on
Friday, following a similar ban by UK and other regulators.
The positive news boosted bank stocks across the globe,
battered this week after Lehman Brothers filed for bankruptcy
protection.
"For once, the market seems to be buying into what the
authorities are doing," said Tom Levinson, forex strategist at
ING.
"It seems they are finally getting ahead of the problem and
taking action that the markets demand to make them happier."
The FTSEurofirst 300 index <> rocketed by 7 percent,
U.S. stock futures <DJc2> <SPc1> rose over 3 percent and the
MSCI main world equity index <.MIWD00000PUS> rallied 2.9
percent.
Shares in U.S. banks Goldman Sachs <GS.N> and Morgan Stanley
<MS.N> rose over 20 percent in pre-electronic trading, while UK
banks Barclays <BARC.L>, HBOS <HBOS.L> and Lloyds TSB <LLOY.L>
climbed over 30 percent.
The dollar rose more than 1 percent against an index of
currencies <.DXY>, 0.5 percent to $1.4238 <EUR=> and nearly 2
percent against the low-yielding yen to 107.56 <JPY=>.
After the announcement, the premium on interbank rates on
borrowing three-month dollars fell to 270 basis points from 300
bps earlier.
WHAT PLAN?
The latest government effort comes after risk-averse
investors began pulling money out of traditionally super-safe
money market funds.
"They are pulling out all the stops here to nip the panic
that was obvious this week in the bud," Ward Mccarthy, managing
director with Stone & Mccarthy Research Associates, in
Princeton, New Jersey.
"What I expect as an immediate response, and it is already
happening, is that safe haven flows will get sucked right out of
the Treasury market."
Safe haven euro zone government bond futures <FGBLc1>
dropped more than 1 percent, in line with weaker U.S.
Treasuries.
Local measures to stem the outflows from stocks also helped
emerging markets.
The MSCI emerging equities index <.MSCIEF> rose 7 percent,
after plumbing its lowest in more than two years on Thursday,
while emerging sovereign debt spreads <11EMJ> squashed in by 46
basis points to 373 bps over U.S. Treasuries.
Gold <XAU=> rose around 1 percent to $840.30 on the firm
dollar, while U.S. crude oil futures <CLc1> rose by 1.6 percent
to $99.48 a barrel.
(Additional reporting by Tamawa Kadoya)
