U.S. proposes sweeping bailout

The meeting capped a day of high drama as government officials, lawmakers and traders sought to keep the financial contagion that staggered markets on Wednesday from resuming its destructive course. To ease the credit crisis, the Fed announced early Thursday that it would boost to nearly $250 billion the funds available for major foreign central banks. Meanwhile, the Securities and Exchange Commission signaled its intention to follow its British counterpart in issuing a temporary ban on short selling.

Short selling is a means of betting that a stock's price will fall by selling borrowed shares in hopes they can be repurchased at a lower price. The practice has been increasingly blamed for causing sudden drops in companies' stock values, frightening away lenders and leaving the firms financially beached.

SEC Chairman Christopher Cox was meeting with commissioners late Thursday. "We are likely to take additional steps in the days ahead that are more particularly addressed to this urgent situation," Cox said.

Early reports that a comprehensive rescue was in the works caused U.S. stock prices to reverse course from Wednesday.

Traders on the New York Stock Exchange broke into cheers Thursday as the bellwether Dow Jones industrial average switched from a 200-point loss to a rise of 410.03 points, or 3.9%, at 11,019.69. The Nasdaq composite index gained 100.25 points, or 4.8%, ending at 2,199.10, and the Standard & Poor's 500 Index climbed 50.12 points, or 4.3%, to close at 1,206.33, its largest one-day percentage gain in nearly six years.

Paulson and Bernanke acted on their new plan after two tumultuous weeks in which policymakers took ad hoc steps that failed to reassure panicky investors. They seized mortgage giants Fannie Mae and Freddie Mac as well as insurance behemoth American International Group Inc., and effectively pulled the plug on investment banks Lehman Bros. Holdings Co. and Merrill Lynch & Co. They also coaxed a group of 10 big financial institutions to kick into a $70-billion self-insurance pool and pumped out billions of dollars more to try to reverse a new and dangerous credit market freeze-up.

The full dimensions of Washington's intervention came into focus late Thursday when the Fed issued figures showing it had made nearly $100 billion in special loans to financial firms around the world in the last week alone.