US rescue plan boosts UK markets

Financial shares made spectacular gains after news of a US rescue plan and a ban on short-selling boosted the ailing sector.

The FTSE 100 Index was up by more than 6% - or 300 points - after bluechips including Royal Bank of Scotland and Lloyds TSB rose in excess of 30%.

The turnaround in sentiment came after the Financial Services Authority banned "short-selling" of listed financial firm stocks - in which traders look to profit from falling share prices - to try to quell the turmoil in the market.

And the mood for markets worldwide was boosted after US Treasury Secretary Hank Paulson said he was hatching a plan to rescue banks from the "toxic" assets that have led to the crisis.

New York's main share index responded by posting its biggest gain for nearly six years - up 410 points or nearly 4%.

Matt Buckland, a dealer at CMC Markets, said central government intervention had boosted markets worldwide. He said: "The combined efforts are so great that there seems to be a coherent belief that this could actually be sufficient to draw a line under what has been a tumultuous 18 months for the markets."

The ban on short-selling in financial shares looked to have removed uncertainty facing shares across the beleaguered banking sector.

Under the Financial Services Authority (FSA) ruling, traders are not allowed to "short" positions in listed financial companies - a practice known as "short selling". The ban came into force at midnight and will last for at least the next four months.

"Short-selling" is when investors borrow stocks in a company to sell them, hoping to buy them back at a cheaper price later on and return them, pocketing the difference as profit.

The practice has been blamed for a run on HBOS shares this week, which led to the group agreeing a £12 billion takeover offer from rival Lloyds TSB.