Bank worries soothed by debt and short-selling plans

By Christian Plumb

NEW YORK (Reuters) - U.S. and British officials intervened to restore confidence in battered global financial markets on Thursday, helping Wall Street bounce back to its best day in six years.

U.S. Treasury Secretary Henry Paulson shopped a plan to create a fund that would mop up toxic debt, and Paulson and Federal Reserve Chairman Ben Bernanke were to meet with congressional leaders Thursday night, sources said.

Meanwhile, British officials moved to crack down on short selling of banks.

"It's very good news, generally speaking," said Haag Sherman, co-founder and managing director of Salient Partners in Houston. "I think it will start to provide a floor to asset values and allow institutions to work through this in a systematic manner. They won't have to rush into the arms of suitors to avoid collapsing."

Morgan Stanley and rival Goldman Sachs Group, the largest surviving independent Wall Street investment banks, have been facing concerns that the credit crunch could constrict the short-term funding they need to do business.

BOUNCE BACK

Paulson's plan would be similar to the creation of the Resolution Trust (RTC), which was used to clean up bad debts from the savings and loan crisis in the late 1980s at a $400 billion (220 billion pound) cost to taxpayers.

The U.S. housing bust of the past two years has created hundreds of billions in toxic debt that has plagued bank balance sheets and led to the credit crisis.