WASHINGTON — President Bush on Tuesday announced a $250 billion plan by the government to directly buy shares in the nation’s leading banks, saying the drastic steps were “not intended to take over the free market but to preserve it.”

Nine major banks will participate initially including all of the country’s largest institutions, he announced, in a move that sent stocks soaring on Wall Street.

Some of the nation’s largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts.

“We regret having to take these actions,” Paulson said. “Today’s actions are not what we ever wanted to do — but today’s actions are what we must do to restore confidence to our financial system.”

It was the latest in a long series of moves taken by the administration and the Federal Reserve over the past several weeks to prop up a weakening financial industry. The economic picture in the United States had been darkening for months, but the slump took on new urgency — and had greater global repercussions — amid record-setting selloffs on Wall Street and enactment of a $700 billion bailout bill.

Under the new multifaceted stabilization program described Tuesday, the government will initially buy stocks in nine major U.S. banks. When financial markets stabilize and recover, the banks are expected to buy the stock back from the government, Bush said in brief remarks from the White House Rose Garden.

“These efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover,” he said.

Paulson told a Treasury Department news conference that the aggressive government intervention was “what we must do to restore confidence in our financial system.”

The Federal Reserve, meanwhile, announced that it will begin buying vast amounts of short-term debt on Oct. 27 — its latest effort to break through a credit clog. The Fed is invoking Depression-era emergency powers to buy commercial paper — a crucial short-term funding that many companies rely on to pay their workers and buy supplies. Last week the Fed said it intended to take the action but didn’t specify when.

Fed Chairman Ben Bernanke welcomed all the new steps and said he believes they will help ease problems plaguing financial markets and threatening the economy. However, he also made clear that policymakers would continue to take actions as needed to battle the crisis.

“Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable set backs,” he said. “But we will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy.”

“The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Paulson said, meaning that they will use the money to bolster lending to each other and to their customers.

“Government owning a stake in any private U.S. company is objectionable to most Americans — me included,” he added. “Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

Said Bernanke: “We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy.”

The move, in effect a partial nationalization of the banking system, does put the United States in the awkward position of owning shares in institutions it also regulates. The shares purchased by the government are expected to be nonvoting ones.

“The government’s role will be limited and temporary,” Bush pledged. “These measures are not intended to take over the free market but to preserve it. He said these steps and other related actions echoed similar bold moves made overseas in an effort to prevent a global recession. Bush said that by restoring confidence in the system, the hope is to “return our economy back to the road of growth and prosperity.”

He said that the efforts to rescue the nation’s battered financial sector was a short-term move to help banks to be able to begin lending again.

Executives of the country’s biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.

The administration plans to spend $250 billion this year on the stock purchases and the president certified Tuesday that another $100 billion would be needed in connection with covering bad assets. That would leave $350 billion of the $700 billion program, presumably to be spent by the next president.

The action represents a remarkable turnaround for a rescue program that was already the largest bailout in U.S. history. As the plan sped through Congress, the administration said the money was needed to purchase bad mortgage-related assets that are weighing on the books of financial institutions, never mentioning direct stock purchases.

However, as the financial crisis gained new intensity last week, sending U.S. stocks down by a record amount, the administration decided to shift focus and adopt a bolder program modeled more along the lines of bank rescue efforts being put together in Britain and other European countries.

Tuesday morning’s Wall Street advance took the Dow Jones industrials up more than 300 points and followed the Dow’s historic 936-point jump Monday, when investors were buying in anticipation of the government’s plan.

After the purchase of preferred stock in nine large banks, the new program is expected to be expanded to many others. Among the initial banks participating will be all of the country’s largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares.

The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction.

At a briefing, Treasury officials said that the first purchases of stock from the nine major banks will begin within days and will total $125 billion. The government expects to spend the entire $250 billion slated for the bank stock purchase program by the end of the year.

In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so.

This FDIC program would take the form of providing insurance for new “senior preferred” debt that one bank would lend to another. This debt would be insured by the FDIC for three years, helping to unlock bank-to-bank lending, which has fallen dramatically because of fears about repayment in the face of billions of dollars of bank losses because of bad loans, primarily in mortgages.

The FDIC will also remove temporarily the current $250,000 limit on FDIC insurance on bank deposits for non-interest-bearing accounts. This primarily would benefit businesses who use non-interest-bearing accounts to run their companies. That money now would be insured, removing the need for companies to juggle funds among multiple bank accounts to stay under the $250,000 limit.

Congress, as part of the bailout bill, temporarily boosted the deposit insurance cap from $100,000 to $250,000, an action that will not be affected by the new program.

The $700 billion rescue program will continue to feature the purchase by the government of banks’ bad assets, but the administration decided to place greater emphasis on the stock purchase program after doubts were raised about how long it might take to get the asset purchase program up and running.

Treasury officials said Tuesday that they still plan to buy troubled assets and that this program would start as soon as possible.

Democrats in Congress, while supportive of Paulson’s desire to expand the program, complained Monday that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that now have helped push the U.S. financial system to the brink.

Paulson said companies which sell stock to the government will be required to accept restrictions on executive compensation including a ban on golden parachutes for the period in which Treasury holds the banks’ stock.

Worried about the slumping U.S. economy only three weeks from the elections, House Republicans and Democrats on Monday pushed for fresh action to prevent a serious downturn. Democrats scheduled hearings to consider a postelection stimulus package that could cost as much as $150 billion. Republicans called for more tax cuts and energy exploration.

In a campaign speech in Ohio, Democratic presidential nominee Barack Obama proposed a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs. His Republican opponent, John McCain, promised a change in direction from the Bush administration’s economic policies.