By Patrick Fitzgibbons and Will Waterman

NEW YORK/LONDON (Reuters) – The U.S. government laid out $50 billion to guarantee money-market mutual funds, curbed short-selling and crafted a sweeping plan to mop up toxic mortgage debt, sending global markets higher on Friday.

As U.S. government authorities brought out the big guns to tackle the mounting financial crisis, investment bank Morgan Stanley bought itself some time to come up with a plan for its future and continued talking to Wachovia Corp and other banks about a merger.

But much of the markets’ focus on Friday was on Washington, as officials from the Bush administration, Congress and the Federal Reserve worked to craft a number of plans to restore confidence in shaken stock markets.

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.

“It’s all part of the program to restore confidence in financial markets. They are absolutely petrified of just a run on financial assets and they came very close to that on Thursday,” said Boris Schlossberg, director of currency research at GFT Forex in New York. “At this point they have just decided that fiscal responsibility goes out the door and anything and everything that needs to be shored up financially will be done so … It seems to be working.”

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

And the Eurozone’s largest bank, Spain’s Santander, declined to comment on a media report it was eyeing Bank of Ireland, which has been pummeled by a property market slump at home.

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.  Continued…