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Stock futures soar on plans to stabilize markets


NEW YORK (Reuters) - Stock futures soared on Friday, indicating Wall Street will add to its gains after the best day in six years, as investors cheered a series of sweeping steps by governments worldwide to contain the spiraling credit crisis.

U.S. authorities, led by U.S. Treasury Secretary Henry Paulson, are working on a comprehensive solution to mop up hundreds of billions of dollars of bad debt from banks' balance sheets that has choked up the global financial system.

Early Friday U.S. securities regulators joined regulators from other countries in temporarily banning short sales of financial shares. In addition, the U.S. Treasury said it will establish a program to guarantee money market fund holdings.

"The ban on the short sales is what's having the immediate impact on the market. That should calm the market down," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"Anybody who has been shorting these financial stocks is going to get burnt in here. What authorities are trying to do is just buy enough time for the market to settle down and for the details of the Paulson plan to be understood, how long it would take to implement and what it means for the banks."

S&P 500 futures jumped 45.80 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 320 points and Nasdaq 100 futures leaped 53.25 points.

Heading into the final day of one of the most momentous weeks in Wall Street history, the benchmark Standard & Poor's 500 looked set to jump more than 3 percent when the opening bell rings.

A widely followed exchange-traded fund that tracks the S&P 500 financial sector, the Financial Select Sector SPDR , rose 17 percent in U.S. pre-market trading.

Shares of Washington Mutual climbed more than 35 percent to $4.04 before the bell after the Wall Street Journal reported that Citigroup was considering making a bid for the U.S. savings and loan.

The Securities and Exchange Commission slapped the ban on short selling of 799 financial stocks, a move that analysts said would help stabilize the market following tumult spawned by the bankruptcy of Lehman Brothers and the bailout of insurer American International Group .

Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to set up an entity that will take bad assets off the balance sheets of banks that has choked the financial system.

That entity would be similar to the Resolution Trust Corp, which was set up to clean up bad debts from the savings and loan crisis in the late 1980s at a $400 billion cost to taxpayers.

The SEC ban on short sales, issued early on Friday, ends on October 2 but can be extended beyond 10 days if deemed necessary. On Thursday, Britain's Financial Services Authority imposed a four-month ban on short selling financial stocks.

(Reporting by Ellis Mnyandu, Editing by Kenneth Barry)

Copyright 2008 Reuters

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