Investors are temporarily being banned from short-selling stocks of financial companies, including Bank of Hawaii Corp. and Central Pacific Financial Corp., as part of the U.S. Securities and Exchange Commission's efforts to shore up market confidence in the face of a spiraling market crisis.

The SEC, in an unprecedented move yesterday, listed 799 financial companies in which short-selling is now banned. Short-selling is an investment method for profiting from a stock's drop.

The ban took effect immediately and extends through Oct. 2. The SEC said it might extend the ban — up to 30 calendar days in total — if it seems necessary.

That window could be enough time to calm the roiling financial markets, with the Bush administration's massive new programs to buy up Wall Street's toxic debt possibly starting to have a salutary effect by then.

Shares of both Honolulu-based companies traded higher yesterday as the market rallied for a second day and news of the short-selling ban spread. Bank of Hawaii, the state's second-largest bank in assets, rose to a 52-week high as it gained $8.50 and closed at $70.

Central Pacific, parent company of Hawai'i's fourth-largest bank, rose $2.05, or 11 percent, to $20.75.

The short-selling ban is "kind of a time-out," said John Coffee, a professor of securities law at Columbia University. "In a time of crisis, the dangers of doing too little are far greater than the dangers of doing too much."

DOWNSIDE OF BAN

But on Wall Street, professional short-sellers said they are being unfairly targeted by the SEC's prohibition. And some analysts warned that banning short-selling could actually distort — not stabilize — edgy markets.

Indeed, hours after the ban was announced, some of its details appeared to be a work in progress. The SEC said its staff was recommending exemptions for trades market professionals to hedge their investments in stock options or futures.

"I don't think it's going to accomplish what they're after," said Jeff Tjornehoj, a senior analyst at fund research firm Lipper Inc. Without short-sellers, he said, investors will have a harder time gauging the true value of a stock.

"Most people want to be in a stock for the long run and want to see prices go up. Short-sellers are useful for throwing water in their face and saying, 'Oh yeah? Think about this,' " Tjornehoj said. So restricting the practice could inflate the value of some stocks, opening the door for a big downward correction later.

"Without offering a flip-side to the price-discovery mechanism, I think there's a pressure build-up in stock prices that only gets relieved in a great cataclysm," he said.

Short-selling involves borrowing a company's shares, selling them, then buying them back later, after the stock has fallen, to return them to the lender. The short-seller pockets the difference in price.

Although the practice can make markets more efficient and bring in more capital, the government argues that it has widened the scope of the recent financial crisis and contributed to the collapsing values of investment and commercial bank stocks in particular.

Government officials on both sides of the Atlantic have been denouncing hedge funds and other short-sellers they say have swarmed over the limp bodies of venerable investment banks and other big companies.

New York Attorney General Andrew Cuomo likened them to "looters after a hurricane," and his office is investigating a possible conspiracy among short-sellers to spread negative rumors to pound down companies' stock prices.

STOPGAP MEASURES

The turmoil in recent weeks has swallowed some of the most storied names on Wall Street. Three of its five major investment banks — Bear Stearns, Lehman Brothers and Merrill Lynch — have either gone out of business or been driven into the arms of another bank. Many contend that short-selling played a key role in forcing the collapse of these institutions.

SEC Chairman Christopher Cox, who with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke met with lawmakers at the Capitol on Thursday night, acknowledged that such extraordinary measures as banning short-selling would not be necessary in a well-functioning market and said they are only temporary.

Cox said his agency "is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets."

He said the temporary ban "will restore equilibrium to markets."

The SEC also imposed a new requirement, also temporary, that investment managers publicly report their new short sales of stocks. And the agency eased restrictions on the ability of companies to buy back their own shares, also through Oct. 2, another move aimed at helping restore liquidity to the distressed and volatile market.

Over the summer, the SEC imposed a 30-day emergency ban on "naked" short-selling — where sellers don't actually borrow the shares they sell — in the stocks of mortgage finance giants Fannie Mae and Freddie Mac and 17 large investment banks.

But yesterday the ban was expanded to all other kinds of short-selling, not just the more aggressive naked variety, and to a much wider universe of companies.

The 799 companies covered by the SEC ban are an A-to-Z of the nation's financial institutions, including powerhouse investment banks such as Goldman Sachs Group Inc. and Morgan Stanley, and commercial banks running the gamut from Bank of America Corp. to Cape Fear Bank Corp. SLM Corp., which is known as Sallie Mae and is the biggest U.S. student lender, is on the list, as are Charles Schwab Corp., Berkshire Hathaway Inc. and Principal Financial Group Inc.