Software Used: Photoshop 7, but should work in all versions.
Tools used: Rectangular Marquee, Gradient Fill, Polar Coordinates Filter
1. Start with a new document. The dimensions must be square. Make the size a few pixels larger than the width you want for the finished rainbow. I'm using 400x400 pixels.
2. Make a new layer.
3. Make a rectangular selection about twice as tall as you want your rainbow width to be. Make this selection just a few pixels away from the bottom edge of the document, but not touching the bottom edge (see screen shot below).