Sept. 19 (Bloomberg) -- European stocks surged, sending the Dow Jones Stoxx 600 Index and the FTSE 100 to their biggest gains on record, after the U.S. government announced plans to halt the credit-market seizure and regulators cracked down on short sellers.
UBS AG, the European bank hardest hit by the subprime crisis, climbed 32 percent after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed removing troubled assets from the balance sheets of financial companies. Barclays Plc advanced 29 percent as the U.K.'s Financial Services Authority banned speculators from betting against financial shares until Jan. 16.
The Stoxx 600 rose the most since data for the index began in 1987, adding 8.3 percent to 278 at 4:37 p.m. in London, led by a rally in banks, insurers and basic resource companies. The FTSE 100 posted a record advance of 9.3 percent, while Russia's RTS Index jumped 22 percent after a two-day suspension and President Dmitry Medvedev's pledge of $20 billion to prop up the market.
``At the start of the week, equity investors weren't just facing a loss but an absolute loss,'' said Gary Dugan, London- based chief investment officer for Europe at Merrill Lynch Global Wealth Management, which oversees $2 trillion. ``Now what they are saying is every financial institution is virtually underwritten by this proposal to drop those assets into a life boat.''
Lehman, AIG
The Stoxx 600 still lost 0.9 percent this week after Lehman Brothers Holdings Inc. filed for bankruptcy, the U.S. government seized control of American International Group Inc. and Merrill Lynch & Co. was forced to sell itself to Bank of America Corp. More than $500 billion in credit losses and writedowns at banks have pushed the global economy toward a recession.
U.S. Treasuries and European government bonds fell today on speculation Paulson and Bernanke's plan will increase demand for stocks over bonds. The Treasury also announced a $50 billion program to insure the holdings of money-market mutual funds for a year.
The dollar rose the most in more than five months against the yen, while the cost of default protection on corporate bonds dropped by the most since the bailout of Bear Stearns Cos. in March.
National benchmark indexes climbed in all 18 western European markets. Germany's DAX jumped 5.6 percent while France's CAC 40 rose 9.3 percent, the most on record.
`Arms Around'
``This resolution will get its arms around the entire financial sector and allow them to no longer be an anchor on the rest of the economy,'' said Neil Dwane, chief investment officer for Europe at Allianz Global Investors' RCM unit, where he helps oversee $65 billion. ``For sentiment the worst could be over for financials.''
UBS added 32 percent to 21 francs. Deutsche Bank AG, Germany's largest bank, jumped 14 percent to 57.50 euros, while Credit Suisse Group, Switzerland's second-biggest bank, climbed 19 percent to 56 francs.
HBOS Plc gained 29 percent to 222.5 pence, trimming its weekly decline to 21 percent. Barclays rose 29 percent to 389 pence, leaving it with a 11 percent gain for the week. Lloyd's TSB Group Plc, the U.K.'s biggest provider of checking accounts, advanced 20 percent to 285.75 pence.
The U.K. Financial Services Authority said today its ban on short selling of financial shares will apply to 29 companies including HBOS and Barclays.
Irish Shorts
Ireland's financial regulator also banned short selling of the country's banking stocks to ``ensure the orderly conduct of the market,'' following the move by its U.K. counterpart. Bank of Ireland Plc gained 39 percent to 5.27 euros amid speculation Spain's Banco Santander SA may bid for the country's second biggest bank.
The Irish lender said today it has not received an approach or entered into discussions with Banco Santander or any other party.
Volkswagen AG was one of just 27 stocks in the Stoxx 600 to fall today. Europe's largest carmaker dropped 14 percent to 262 euros as investors decided recent gains were overdone following a 47 percent surge in the past three days.
Christian Aust, an analyst with Munich-based Unicredit, said the ``irrational levels'' that Volkswagen stock reached this week, amid a rally that included short-sellers unwinding positions in the wake of the bankruptcy of Lehman Brothers, couldn't be sustained
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