Stocks Surge On Financial Fix-Up, Short Selling Ban (Update)

(Update) Stocks are in rocket mode today after a plan by the U.S. government to aggressively target the credit crisis and ban short-selling of financial stocks. At 1:30PM ET, the Dow was up 410 points, the Nasdaq was up 70 points and the S&P 500 was up 49 points.

Treasury Secretary Paulson is working with Congress to pass legislation to remove troubled assets from the financial system. In addition, the GSEs Fannie Mae and Freddie Mac will increase their purchases of mortgage-backed securities (MBS). Also, Treasury will expand the MBS purchase program announced earlier this month. Paulson said the plan could cost "hundred of billions"

The U.S. Treasury Department also announced the establishment of a temporary guaranty program for the U.S. money market mutual fund industry. For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund – both retail and institutional – that pays a fee to participate in the program.

Following yesterday's move in the UK to ban short-selling in financial stocks, the U.S. SEC announced a similar move, banning shorting of 799 financial companies until October 2nd. Dow component General Electric (NYSE: GE), which was not on the original list, may also be added.

A number of financial stocks are higher today on the news. The key financial ETF, Financial Select Sector SPDR (AMEX: XLF), is up 12%. Investment banks Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS), which have seen their stocks pummeled recently, are up 30% and 22%, respectively. Embattled bank WaMu (NYSE: WM) rose 30% on reports Citigroup (NYSE: C) is considering buying the company.

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