A rally in banking shares lifted stock markets in the UK and the rest of Europe on Friday after several European countries introduced short-selling bans.

A row between national regulators erupted after France, Italy, Spain and Belgium imposed bans on the short-selling of financial stocks for 15 days after a week of turmoil in European financial markets. Britain, the Netherlands and Austria refused to follow suit, while Germany is pushing for a Europe-wide ban on naked short-selling of stocks, government bonds and credit default swaps.

Short-selling involves investors borrowing shares and selling them on the expectation their price will fall and that they can be bought back at a lower price. In a naked short sale, the investor has not borrowed the shares, but still bets on a drop in the share price.

The chairman of the European Securities and Markets Authority called on policymakers to come up with a plan for Europe-wide rules on short-selling "as quickly as possible".

Banking stocks, in particular French banks, have been under a lot of pressure this week as the eurozone debt crisis intensifies. Shares in French banks – which are heavily exposed to the Greek debt crisis – opened weaker but later rallied, with bargain-hunters taking advantage of historically low valuations. Société Générale climbed 5.7%, BNP Paribas rose 4.2% and Natixis jumped 9.2%, helping lift the French Cac 40 index 4% higher, despite data showing that the French economy stagnated in the second quarter.

In other markets that imposed bans, UniCredit gained 5.6% in Milan, Banco Santander rallied 6.6% in Madrid, and Dexia surged 17% in Brussels. The Spanish stock market closed 4.8% higher, while the Italian market was up 4% and shares in Portugal rose 3%.

UK banks also benefited, rising for a second day, with Barclays, Lloyds Banking Group and Royal Bank of Scotland all enjoying gains around the 5% mark. The FTSE 100 index in London posted its first two-day increase in three weeks. It closed 157.2 points, or 3%, higher at 5320.03.

Investors were also cheered by upbeat US retail sales for July, which offset a sharp fall in US consumer confidence. However, City analysts, traders and academics questioned the value of short-selling bans, saying they can do more harm than good, and did nothing to address the root causes of investors' concerns – the eurozone's debt problems. Nervous mutual funds are thought to be behind this week's stock sell-off.

Britain's Financial Services Authority ruled out a short-selling ban, although it stressed it was monitoring markets closely. The City watchdog said: "We have an existing short-selling disclosure regime around financial stocks in place and we continue to monitor the activity in our markets accordingly. We have no current plans to introduce a short-selling ban in the UK."

Experts argued that the bans by the four EU members will be ineffective. "While the ban on short-selling equities may support share prices for a day or two, unfortunately it is highly unlikely to prevent a further sell-off," said Manoj Ladwa, senior trader at ETX Capital. "While they may not be able to short-sell, any rally in stocks will only give traders the opportunity to close out of existing positions."

Jane Foley senior currency strategist at Rabobank agreed. "The precedent set by the US September 2008 ban suggests that the measure is too lame to prevent a sharp downswing in prices if sentiment is bearish."

A global study by Cass Business School, to be published in the Journal of Finance, suggests the short-selling bans are unlikely to prevent share prices sliding further and could inflict serious damage on the stock market.

The study, which examines the impact of a ban in 30 countries using data from nearly 17,000 stocks between 2008 and 2009, concludes that curbs on short-selling fail to support stock prices, severely reduce liquidity and restrict the flow of information to the market.

Italy was hardest hit by the ban, followed by Denmark, Australia and Switzerland. Spain, Belgium, Norway, Ireland, the US and the UK experienced the next largest fall in liquidity, while the Netherlands, South Korea and Austria were among those least affected.

Professor Alessandro Beber from Cass, co-author of the report, said: "According to our study, the knee-jerk reaction of most stock exchange regulators around the globe had a severely damaging effect on market liquidity. This was especially pronounced for stocks with small market capitalisation, high volatility and no listed options.

"Our evidence convincingly shows that bans are bad for liquidity and do not help to support prices. This should send a strong message to regulators that fresh bans on short-selling could cause more harm than good."