Dow Jones index jumped 3.8% in early trading, while London's FTSE 100 index was up 8%. With more details of the rescue package would be announced next week.

"To restore confidence in our markets and our financial institutions, so they can fuel continued growth and prosperity, we must address the underlying problem," Mr Paulson said.

In a span of about 12 hours, the government took several moves to help restore stability in the markets. The actions began Thursday with discussions between the Treasury, Federal Reserve and Congressional leaders on what could become the biggest bailout in United States history, a plan likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions.

On Friday morning, in a move against traders who have sought to profit from the financial crisis by betting against bank shares, the Securities and Exchange Commission issued a temporary ban on short sales of 799 financial stocks, following similar action in Britain on Thursday.

And then the Treasury said that it would guarantee, at least temporarily, money market funds up to an amount of $50 billion in order to ensure their solvency, a startling intervention to shore up an area that had been considered among the safest investments.

In a statement Friday morning, Henry M. Paulson Jr., the Treasury secretary, said the actions taken by the government so far had not been enough.

“The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy,” Mr. Paulson said. “This troubled asset relief program must be properly designed and sufficiently large to have maximum impact.”

Financial stocks have gained the most from the rise in confidence on the markets. In London, the Royal Bank of Scotland and HBOS rose as much as 50%. Moves to restrict short-selling in the US and UK also helped to boost financial shares.
Short-selling occurs when a trader borrows shares from another to sell

Nobody knows how sustainable this is, but the immediate reaction just to the rumors about the steps yesterday showed that this has the potential of being the beginning of the end,” said Michael Holland, chairman of Holland & Company.

“The problem has been negative psychology and the lack of liquidity and this move by the Fed and the Treasury may just be part of a solution to that. It’s been a crazy couple of days. In my entire career I haven’t seen anything as crazy as this.”

United States Treasuries, which have surged in price in recent days as investors fled to safety, fell back in response to the news.

In his news conference, Mr. Paulson said he would discuss the plan to create a government-sponsored vehicle to buy distressed debt with members of Congress this weekend and expected them to pass legislation next week. Asked about the size of the package, he said: “We are talking hundreds of billions of dollars.”