FRANKFURT, Germany Global stock markets roared higher on Friday after news of a U.S. government plan to rescue banks from toxic mortgage debt raised investors' hopes amid the world's worst financial crisis in decades.
Asian and European markets posted big gains in anticipation of the rescue proposal and Wall Street followed through with a big rally as U.S. Treasury Secretary Henry Paulson sketched the outlines of the still-developing plan that he said would "restore our financial institutions to a sound footing."
"We're talking hundreds of billions" of dollars, he said when asked about the cost, but added it "will cost American families far less than the alternative a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion." He said he planned to consult with Congress on details over the weekend.
In New York, the Dow Jones industrial average climbed 385 points, or 3.5 percent, in midmorning trading. The London exchange's benchmark index was up 8.7 percent, while the Paris exchange was up 7.7 percent and Germany's key stock gauge gained more than 5 percent. The Hong Kong market closed 9.6 percent higher and Japan finished with a 3.8 percent gain.
European exchanges, which had spent nearly all of this week drowning in declines, surged along with battered bank stocks. Limits on short selling in financial stocks effectively a bet that a stock will decline in the U.S., Britain and Ireland also helped push markets higher, analysts said. Critics say short selling in financial stocks worsened the recent market declines.
"The short-term changes to short selling are certainly giving markets and regulators room to breathe," said Keith Bowman, equity analyst Hargreaves Lansdown Stockbrokers. "But there are going to be a significant number of hurdles to overcome for this temporary measure to prove useful at solving the fundamental problems over the long term."
Another factor were moves by the European Central Bank, Swiss National Bank and Bank of England to offer up more cash Friday. The three banks put a combined $90 billion into money markets in a lockstep move.
London's FTSE was led 8.7 percent higher by the Royal Bank of Scotland whose shares gained some 39 percent. In Paris, the CAC-40 Index was up 7.7 percent while shares in Oslo rose nearly 8 percent.
In Frankfurt, the DAX index sprung more than 5 percent higher with shares of Commerzbank AG and Deutsche Bank AG leaping 22.7 percent and nearly 19.5 percent, respectively.
The Irish Stock Exchange responded with its biggest burst in Dublin trading history, rising more than 25 percent in the first hour. The financials-heavy index soon settled back on profit-taking, but remained up more than 12 percent.
Irish regulators also banned short-selling on the stocks of the country's four largest financials: Allied Irish Banks, Bank of Ireland, Irish Life & Permanent and Anglo-Irish Bank Corp.
Russia's stock exchanges saw trading halted twice after a volatile session saw stocks shoot higher. The dollar-denominated RTS climbed by 22.7 percent, while the MICEX soared by 31.4 percent.
Both indexes were closed on Wednesday for two days after the MICEX suffered one-day losses on a scale not seen since Russia's 1998 financial collapse.
Austria's ATX surged 11 percent in afternoon trade. In Madrid, the SMSI was up nearly 7.2 percent while Swedish shares climbed 7.5 percent higher in Stockholm. In Belgium, shares gained 8.9 percent on the Euronext Bel-20.
Across Asia, similar spikes were seen. Hong Kong's Hang Seng Index surged 9.6 percent to 19,327.73, while Japan's Nikkei 225 average rose 3.8 percent to 11,920.86.
In China, the Shanghai benchmark jumped 9.5 percent its biggest gain ever after the government eliminated a tax on share purchases and said it was buying shares in state-owned banks.
The global turnaround came after investors took to heart word that the U.S. government was seeking the power to rescue banks by buying distressed assets at the heart of the financial system turmoil that's brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns.
Details of the plan were still being worked out, but Paulson emerged from a nighttime meeting on Capitol Hill Thursday to say he hoped to have a solution "aimed right at the heart of this problem."
"It definitely gives investors a light at the end of the tunnel," said Daniel McCormack, a strategist for Macquarie Securities in Hong Kong. "The solution is of such a magnitude that it could eventually fix the problems ... That's hugely important at the moment because that's what markets are focused on."
Oil prices rose above $100 a barrel before retreating Friday. By afternoon in Europe, light, sweet crude for October delivery had risen $1.61 to $99.49 a barrel in electronic trading.
The euro rose to $1.4389 in European trading from the $1.4247 it bought in New York late Thursday.The British pound edged higher to $1.8238 from $1.8076, while the dollar rose to 107.68 Japanese yen from 106.19 yen.
AP business writers Emily Flynn Vencat in London, Jeremiah Marquez in Hong Kong and Elaine Kurtenbach in Shanghai, and AP writers Shawn Pogatchnik in Dublin, Veronika Oleksyn in Vienna and Tomoko Hosaka in Tokyo contributed to this report.