Oct. 3 (Bloomberg) -- The U.S. Securities and Exchange Commission's ban on short-selling of financial stocks will end next week, following the government's approval of a $700 billion financial industry rescue package.

The prohibition on betting on a decline in share prices will expire Oct. 8, the SEC said in a statement today. The SEC said it imposed the ban to calm markets and give Congress and the White House time to adopt legislation that lets the Treasury purchase illiquid assets that are burdening banks.

The SEC took on short-selling last month after Morgan Stanley Chief Executive Officer John Mack and New York Democratic Senator Charles Schumer blamed the practice for driving companies to the brink of collapse. Hedge funds opposed the ban, arguing that regulators were blaming traders for companies' mismanagement and the banking industry's over- concentration in mortgage-backed securities that lost value after credit markets froze last year.

President George W. Bush signed the economic bailout into law today hours after the House passed the measure. The Senate approved the legislation Oct. 1.

Short-sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: October 3, 2008 17:41 EDT