WASHINGTON — In a major strategic shift, the Bush administration has decided to pour at least $250 billion directly into major banks and expand federal insurance protection to encourage financial institutions to resume lending to each other.

Stocks soared yesterday on hopes that policymakers had hit on the right formula to thaw the frozen credit system and quell the financial calamity that has hammered giant banks and small investors alike.

"The history of banking crises suggests very strongly that you need heavy government involvement. Half measures don't work," said Nariman Behravesh, chief economist at forecasting company Global Insight. "This is a good thing. It's about time."

Scheduled to be rolled out today by President Bush, the strategy resembles the path taken by Britain and the European Union, a route credited with reviving stock markets there.

Under the new approach, which can be implemented under the $700 billion rescue plan approved by Congress last month, the federal government intends to pump capital into nine major banks and financial companies that agreed to participate during meetings yesterday with Treasury Secretary Henry Paulson.

In return, the government would receive shares of their stock. Additional banks are expected to participate as the program moves forward, according to a person with knowledge of the plan who was not authorized to speak publicly.

In addition to helping recapitalize banks, the administration also will try to restart lending among banks by using the Federal Deposit Insurance Corp. to insure senior preferred bank debt, which commonly includes funds borrowed from other banks.

Many details are still being worked out, but opening the availability of credit is considered vital not only to the financial industry but to the economy overall. Almost all businesses depend on credit to meet such issues as payrolls and investment in new products and equipment.

BAILOUT PLAN SHUFFLED

As the administration moves ahead with plans to purchase hundreds of billion of dollars in toxic, mortgage-related securities — the centerpiece of the original bailout scheme — the new strategy probably will place that into a secondary position.

For one thing, the asset-purchase program will take several weeks if not months to get up and running. More immediately, in the weeklong struggle to win congressional approval of the original bailout plan, Congress granted Treasury immediate access to only $250 billion. Bush can authorize spending an additional $100 billion; anything after that requires congressional approval.

Assistant Treasury Secretary Neel Kashkari, in a speech on the overall rescue strategy, said the legislation approved by Congress gave the Treasury flexibility — including the right to take equity positions in banks — so it could adapt to changing conditions.

"The one constant throughout the credit crisis has been its unpredictability," Kashkari said.

Government officials did not name the nine banks that would participate initially, but media reports late yesterday included Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley.

BANKS MAY PROTEST

If the new strategy brought cheers from some economists, at least some in the banking industry reacted with alarm.

One industry insider, who spoke on condition of anonymity because he was not authorized to discuss the plan publicly, said he feared it would set off a firestorm of anger among the hundreds of banks not included in the initial phase, as well as their customers.

"This worked in Sweden where you have about 14 banks," he said, referring to a Swedish intervention in a banking crisis several years ago. "Here we have thousands of banks. The guys at Treasury are thinking as Wall Street people. But they are about to bump into something called democracy. They are going to hear from 5,000 banks (and) 3,000 credit unions saying, 'You are picking winners and losers.' "

Stepped-up government intervention was received well in Europe but might not fly as well in the United States, said Edwin Truman, a senior fellow at the Peterson Institute for International Economics.

"We have a sharper distinction between the private sector and the public sector," Truman said. "It's a higher hurdle to jump in this country."

DETAILS GIVEN TODAY

Government officials were expected to provide details of the stock purchase program and the new FDIC insurance program today. Both programs were designed to curb the cost to taxpayers over time. If the stock value of the financial institutions rises, it could be sold at a profit. The FDIC insurance program would be paid for with bank premiums.

Another reason for the shift in strategy was the ongoing volatility of global stock markets. Behravesh of Global Insight said that the government had to act fast and had to act large. The weekend moves in Europe and the anticipated U.S. stock purchase plan seemed to be enough to calm the markets, at least temporarily.

"Finally, there was concerted action and big action," Behravesh said. "It was coordinated and it was big, and that's why it worked."