By Christopher Kaufman

NEW YORK (Reuters) - U.S. market regulators issued an emergency ban on the short-selling of financial stocks on Friday, igniting big rallies in the sector that has been targeted by sellers as the credit crisis gathered pace.

The U.S. ban came a day after the U.K. Financial Services Authority imposed its own temporary four-month ban on short-selling of financial stocks. National market watchdogs in France, Portugal, and Ireland took similar steps.

The U.S. Securities and Exchange Commission ban came after SEC Chairman Christopher Cox was widely criticized for not acting to control the practice that had led to sharp declines in U.S. and European financial stocks since the onset of the credit crunch.

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

"Part of this is politics, and part is a view that there was going to be a significant malaise that was going to drag on for a long time, (so) that the government had to do something dramatic," said George Mazin, a partner at Dechert LLP who advises hedge funds.

The SEC order followed a formal commission meeting Thursday night and a separate extraordinary meeting that Cox and other senior officials attended in the Capitol building the same evening. Senior administration officials asked Congressional leaders for additional authority to soothe turbulent capital markets.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are seeking legislation to give the U.S. government the power to buy up illiquid assets that are plaguing financial companies.

'RESTORE EQUILIBRIUM'