By Paul Hoskins and Steve Slater

LONDON (Reuters) - Regulators brought in rules on Friday to prevent investors profiting from falling financial stocks, helping fuel a furious rally in banks and other stocks battered by the deepening global credit crisis.

The U.S. said short selling of 799 financial stocks is to be halted from Friday under an emergency Securities and Exchange Commission order. The halt will end on October 2 but could be extended if necessary.

Britain's financial watchdog had led the move by banning short selling on 29 banks and other financial stocks. Regulators in Ireland, Switzerland and Australia and other countries followed suit to varying degrees.

Some of Europe's biggest banks soared over 40 percent and by 11:52 a.m. the DJ Stoxx Banks index had rallied 16 percent to 293.3 points. .EU

The rally was also helped by a radical U.S. plan to mop up toxic mortgage debt as authorities continued to take drastic action to halt panic spreading across the industry.

"The big armoury is really aimed at it (the financial crisis). There's been massive liquidity injections and now restrictions on the free market economy," said Simon Maughan, analyst at MG Global.

Short-selling involves an investor selling stock in anticipation the price will fall -- in which case the investor can buy the stock back at a lower price. Such a strategy is usually coupled with borrowing the stock being sold from an institutional investor such as a pension fund.

Although drastic, the latest regulator moves are aimed at preventing short sellers targeting a troubled bank and potentially driving it to collapse. Speculators have been criticised for targeting banks including Lehman Brothers LEH.N and HBOS HBOS.L.