The US government launched several multibillion-dollar programs to guarantee holdings in money-market mutual funds and curb short-selling while developing a more sweeping plan to mop up toxic mortgage debt, sending global markets sharply higher on Friday.

U.S. stocks clocked their biggest percentage gain in six years late Thursday, powering a rally in the dollar and pushing oil prices higher, and on Friday Asian and European markets picked up where New York's left off.

The price of gold and government bonds, traditional safe havens in times of turmoil, both slipped back.

U.S. officials rushed to shore up ailing money markets after signs that this long-safe corner of financial markets, home to some $3.5 trillion of deposits, was at risk of falling victim to the year-old credit crunch and bring the crisis to Main Street.

The U.S. Treasury Department said it would use $50 billion to back money market mutual funds whose asset values fall below $1 a share.

Separately, the U.S. Federal Reserve said it would lend even more money directly to financial institutions so they could purchase certain assets from money market funds.

The latest government efforts come after the credit crisis, which had largely been seen as problem for Wall Street risk takers, threatened to spill over into Main Street after some super-safe money market funds buckled.

"For the next year, the U.S. Treasury will insure the holdings of any publicly offered eligible money market mutual fund -- both retail and institutional -- that pays a fee to participate in the program," the Treasury said in a statement.

President Bush approved use of the Exchange Stabilization Fund to guarantee payments, Treasury said.

The fund, which traces its roots to the Gold Reserve Act of 1934, allows the Treasury to conduct various transactions with the Treasury secretary's authorization.

The surprise moves comes as the Treasury and the Federal Reserve consider broad government intervention to prevent the collapse of the financial system, shaken in rece fallen to near zero earlier in the week as investors panicked and rushed for the safety of government securities after the oldest U.S. money market fund "broke the buck," or fell below $1 net asset value.

The dollar, meanwhile, rose to a one-week high against the Japanese yen as investors regained an appetite for risk amid all the steps being taken to address the credit crunch.

The Treasury said concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets.

"Maintaining confidence in the money market fund industry is critical to protecting the integrity and stability of the global financial system," the Treasury Department said in a statement.

The panic in money markets began Tuesday, when the Reserve Primary Fund, a money-market mutual fund whose assets have tumbled 65 percent in recent weeks, fell below $1 a share in net asset value, because of its losses on debt issued by Lehman Brothers Holdings Inc.

In the industry, money money funds whose net assets drop below $1 a share are said to have "broken the buck".

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to deal with the toxic bank assets that have been choking the financial system for a year.

"This is a more substantial and systemic solution than the ad hoc interventions we have seen in recent days," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong.

"At present, confidence is the most important factor, and this will only be maintained if the rescue plans are delivered on both sides of the Atlantic," said Andrew Turnbull, senior sales manager at ODL Securities.

As government authorities brought out the big guns to tackle the financial crisis, U.S. investment bank Morgan Stanley [MS 30.70 8.15 (+36.14%) ] continued talking to Wachovia and other banks about a merger, while discussing a possible increased investment from China's sovereign wealth fund, sources familiar with the plans said.

Sovereign wealth fund China Investment Corp, Morgan Stanley's largest shareholder, was in talks that could see its stake climb to as much as 49 percent from its current 9.9 percent that it paid $5 billion for in December, sources familiar with the matter said.

In the most recent example of a government entity stepping in to ease fears, the U.S. Treasury Department said on Friday it will use $50 billion to back money market mutual funds whose asset values fall below $1 in another step to contain raging financial turmoil.

UK lender HSBC Holdings walked away from a $6.3 billion deal for control of Korea Exchange Bank fuelling speculation it may be turning its attentions to one of its embattled rivals in the West instead.

After Britain's Financial Services Authority imposed a four-month ban on short selling financial stocks on Thursday, the U.S. Securities and Exchange Commission followed suit on Friday with an immediate 10-day ban.

French regulator AMF said it was also talking to other Eurozone regulators about market dealings, leading to expectations that the ban would snowball.

Meanwhile the world's central banks redoubled their efforts to lubricate the seized-up money markets.

Japan, Australia, India and Indonesia pumped in $42 billion after the U.S. Fed co-ordinated a $180 billion package a day earlier. In Europe, there were signs that the stress was easing.

The cost of borrowing dollars overnight fell back towards the Fed's 2 percent target, and three-month borrowing costs slid. The Bank of England offered $40 billion to banks, but only half of it was taken up.

The roots of the current crisis can be traced to lax lending for home mortgages — especially subprime loans given to borrowers with tarnished credit — during the housing boom. Lenders and borrowers were counting on home prices to keep zooming upward. But when the U.S. housing market went bust, home prices plummeted. Foreclosures spiked as people were left owing more on their mortgage than their home was worth. Rising mortgage rates also clobbered some homeowners.

As financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending. That crimped consumer and business spending, dragging down the national economy — a vicious cycle policymakers have been trying to break.

"The root cause of the stress in the capital markets is the real estate correction," Paulson said, adding he hopes to have a solution "aimed right at the heart of this problem."

Bernanke said a resolution would help "get our economy moving again."

The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance. There was no immediate word on how much the new rescue plan might cost.