U.S. Stocks Rally on Federal Plan to Shore Up Financial System

U.S. Stocks Rally on Federal Plan to Shore Up Financial System

Sept. 18 (Bloomberg) -- U.S. stocks rose on prospects the government is formulating a ``permanent'' plan to shore up financial markets and regulators and pension funds took steps aimed at curbing bets against banks and brokerages.

``Any actions regulators or other entities or players take to try to slow down the bear raids will be received positively,'' said David Katz, chief investment officer of Matrix Asset Advisors in New York, which manages $1.4 billion. ``There's no reason a Goldman Sachs or a Morgan Stanley should be forced to sell themselves in a shotgun wedding if they've got economic models that work, and they do.''

`Elevated Pressures'


About $3.6 trillion of market value has been erased from global stocks this week, triggered by the bankruptcy filing by Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Russia said it will spend 500 billion rubles ($20 billion) to support the market after shutting exchanges for two days, while China said it will scrap the stamp duty on stock purchases.

Banks Gain

Morgan Stanley is considering selling a larger stake to China Investment Corp., the state-controlled investment fund, and is in talks about a possible merger with Wachovia Corp., said a person familiar with the matter.

Short Sales

The Securities and Exchange Commission's new rules force traders to borrow shares before selling them short and make it a fraud for investors to lie to their broker about locating stock to close positions. The SEC may also require hedge funds to disclose their short-sale positions and plans to subpoena the funds' communication records.

In the U.K., the Financial Services Authority banned short sales of financial shares for the rest of the year after HBOS Plc, the country's biggest mortgage lender, lost 37 percent of its market value over three days. In a short sale, investors borrow stock and sell it. The sellers profit if the shares go down and they can repay the loan with cheaper stock.

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