* Financial stocks lead on US plans to stabilize markets
* SEC imposes temporary ban on short sales
* US Treasury to back money market mutual funds
* Citigroup considering bid for WaMu-WSJ
* Dow up almost 4 pct, S&P up 4.5 pct, Nasdaq up 3.5 pct
(Updates to midday)
By Ellis Mnyandu
NEW YORK, Sept 19 (Reuters) - U.S. stocks rallied on
Friday, led by a surge in financials, after the government
unveiled plans to mop up bad assets and place a temporary ban
on bets that financial stocks will fall.
In addition, the U.S. Treasury said it will establish a
program to guarantee money market fund holdings, aiming to
prevent Wall Street's losses from spilling over into the wider
economy.
The rally, coming a day after Wall Street scored its best
day in six years, drove shares of Bank of America<BAC.N>, the
No. 2 U.S. bank, up 21.6 percent to $37.17, making the stock
the top boost to the Dow and the second-biggest advancer in
the S&P 500.
Shares of No. 3 U.S. bank JPMorgan Chase <JPM.N> , up more
than 13 percent at $45.67, were the Dow's second-best
performer. The S&P financial index jumped 10.9 percent.
Led by Treasury Secretary Henry Paulson, officials are
working on a solution to take over hundreds of billions of
dollars worth of soured bank assets that have crippled the
global financial system.
In another bid to stabilize markets, U.S. securities
regulators joined regulators from other countries in
temporarily banning short sales of financial shares.
The stabilization measures helped calm nerves on the last
day of a tumultuous week in which Lehman Brothers Holdings
<LEH.N> filed for bankruptcy protection and the U.S.
government bailed out insurer American International Group
<AIG.N>.
Investors had worried that the financial upheaval, which
earlier this week froze lending among banks as the crisis of
confidence escalated, would hurt the economy and curb
profits.
"I think people are excited about what's going on, but at
the same time, they are still waiting for the dust to settle,"
said Ray Rund, managing director and head of research at
Shaker Investments in Cleveland, Ohio. "The devil is always in
the details."
The Dow Jones industrial average <> shot up 435.11
points, or 3.95 percent, to 11,454.80. The Standard & Poor's
500 Index <.SPX> gained 53.84 points, or 4.46 percent, to
1,260.35. The Nasdaq Composite Index <> leaped 77.17
points, or 3.51 percent, to 2,276.27.
The rally restored the blue-chip Dow average back to just
above the break-even point for the week, after being off
nearly 1,000 points since last Friday during the market's
earlier plunge.
Shares of Washington Mutual <WM.N> climbed 27.4 percent to
$3.81 after the Wall Street Journal reported that Citigroup
<C.N> was considering making a bid for the U.S. savings and
loan. For details, see []
Citigroup shares leaped 27.2 percent to $21.49 on the New
York Stock Exchange.
Shares of Morgan Stanley <MS.N>, pummeled earlier this
week as investors fretted about the outlook for the last two
remaining U.S. investment banks, jumped nearly 35 percent to
$30.51.
Shares of rival Goldman Sachs <GS.N> climbed 24.3 percent
to $13.29.
Morgan Stanley is engaged in deal talks with among others,
regional banking powerhouse Wachovia Corp <WB.N> , a source
said. Wachovia's stock surged 37.8 percent to $19.98.
On Nasdaq, shares of Apple Inc <AAPL.O> , the maker of the
iPhone, ranked as the top advancer, up almost 7 percent at
$143.31.
The U.S. Securities and Exchange Commission slapped a ban
on short selling of nearly 800 financial stocks. On Thursday,
British authorities also issued a ban on short selling.
Investors who sell securities "short" profit from betting
stocks will fall. Short-sellers borrow shares and then sell
them, waiting for the stock to fall so they can buy the shares
back at the lower price, return them to the lender and pocket
the difference.
(Editing by Jan Paschal)
