By Herbert Lash
NEW YORK (Reuters) - Global stocks rallied on Friday, withEuropean shares notching their biggest gain ever, as a U.S.plan to unwind a deadly credit crisis bolstered investorconfidence and sent such safe-havens as bonds and gold sharplylower.
The yen fell to a 10-day low against the dollar as U.S.authorities moved to thaw seized-up credit markets that hadcaused equities to tumble and had boosted risk aversion aroundthe world.
Gold futures in New York dropped 4 percent in heavyprofit-taking and the price of European and U.S. governmentdebt slumped after Washington said it was crafting a sweepingprogram to tackle toxic bank assets that have choked thefinancial system.
The stock rally added to sharp gains on Thursday, which hadmarked the best day on Wall Street in six years. Europe'sleading share index surged 8.19 percent, its biggest one-daypercentage gain on record.
Financial stocks in the United States and Europe led thecharge. UBS surged 31.66 percent, Barclays advanced 29.24percent and HBOS jumped 28.91 percent in Europe.
In the United States, Goldman Sachs gained 25 percent,Citigroup jumped 24 percent, Merrill Lynch rose 25 percent,Bank of America soared 36 percent and Wachovia climbed 32percent.
U.S. Treasury Secretary Henry Paulson called for the U.S.government to spend hundreds of billions of dollars to taketoxic mortgage assets off the books of financial firms torestore financial stability in battered capital markets.
Traders unwound safe-haven positions on hopes the measureswould be a watershed event to end the carnage that in two weeksclaimed two Wall Street icons, what had been the world'sbiggest insurer, and two pillars of the U.S. housing financemarket.
"They are trying to create a kind of calm in the marketplace and so far that's worked," said Tom Tucci, headTreasuries trader with RBC Capital Markets in New York.
Before 1 p.m., the Dow Jones industrial average was up426.24 points, or 3.87 percent, at 11,445.93. The Standard &Poor's 500 Index was up 52.80 points, or 4.38 percent, at1,259.31. The Nasdaq Composite Index was up 75.93 points, or3.45 percent, at 2,275.03.
A temporary ban short-selling in financial stocks, in whichinvestors bet stocks will fall, and the U.S. government's planslifted European shares.
The FTSEurofirst 300 index closed up 87.16 points at1,150.78 points, after rising as high as 1,153.38. The indexhas fallen 23.6 percent so far in 2008.
The UK Financial Services Authority on Thursday imposed atemporary ban on short-selling financial stocks, whileshort-selling of 799 U.S. financial stocks will be halted underan emergency Securities and Exchange Commission order.
The dollar rose more than 3 percent versus the Japaneseyen, and the euro gained against the yen as the appetite forrisk returned.
The euro rose 0.46 percent at $1.4403. The dollar fellagainst major currencies, with the U.S. Dollar Index down 0.29percent at 77.902. Against the yen, the dollar rose 1.53percent at 107.16.
The price of benchmark U.S. and euro zone government debtdived, with short-dated euro zone government bond yieldsnotching their biggest daily jump in more than five years.
The two-year Schatz yield was last up 41.3 basis points at4.02 percent.
The price of 30-year U.S. Treasury debt fell more than 3points and benchmark 10-year Treasury notes fell 2 full points.
The 10-year U.S. Treasury note fell 60/32 to yield at 3.78percent. The 30-year U.S. Treasury bond slid 91/32 to yield4.37 percent.
"We have an unwind of the flight-to-safety bid. For thetime being we take the outlines of this (U.S.) plan as beinggospel and offering us comfort that we are perhaps reaching anend game and a turning point," said Marc Ostwald, a bondanalyst at Monument Securities in London.
"Are we out of the woods yet? By no means," he said, notingthe U.S. Congress will have to approve the measures, whichmight prove tricky before presidential elections in November.
Oil rose nearly $3 a barrel on expectations the U.S. planwould help battered financial markets.
U.S. light sweet crude oil rose $2.92 to $100.80 a barrel.
December gold futures fell $37.20 at $859.80 an ounce, butspot gold prices rose $12.70, or 1.50 percent, to $859.95 anounce.
U.S. authorities tinkered with last-minute details to plansto offload hundreds of billions of dollars of bad debt frombanks' balance sheets to ease investor fears that had put astranglehold on the global financial system in recent weeks.
U.S. securities regulators joined authorities from othercountries early Friday in temporarily banning short sales offinancial shares. In addition, the U.S. Treasury said it willestablish a program to guarantee money market fund holdings.
Asian shares jumped overnight, with Japan's Nikkei shareaverage up 3.8 percent, and MSCI's Asia-Pacific stock indexoutside Japan up 5.9 percent.
(Reporting by Ellis Mnyandu, Steven C. Johnson, John Parry,Lucia Mutikani and Gertrude Chavez-Dreyfuss in New York andMatthew Robinson, Atul Prakash and Emelia Sithole-Matarise inLondon and Sarah Marsh in Frankfurt; Writing by Herbert Lash;Editing by Leslie Adler)
