Triple boost sees world bounce back by shares

The FTSE 100 index soared 172.8 points to 5587.2 in London and the Dow Jones Industrial Average was 265.30 higher at 12,237.60 in New York. Exchanges across Europe were also on the move in another dramatic day on world markets.

It was a much-needed recovery after yesterday's bloodbath, which saw the Footsie crash more than 200 points to its lowest in two-and-a-half years.

The carnage followed the near-collapse and rescue of Wall Street investment bank Bear Stearns, which was sold to JPMorgan Chase for $240 million (£119 million) - a fraction of what it was worth just days before.

But analysts in the City warned that tonight's rally did not mean the crisis was over, and said Bear Stearns may not be the last bank to fall.

Claire Collingwood of CMC Markets said: "We are still looking at the other investment banks in the wake of Bear Stearns, and there are worries that something similar could happen to one of them. The market is very cautious."

Howard Wheeldon of BGC Partners said: "The collapse of Bear Stearns and its sale to JPMorgan for less than 1% of its market value a year ago may just be the most important negative marker we will see in this crisis of market confidence. At its best, it could mark the halfway point. But at its worst it is confirmation that the financial world as we know it may never again be the same."

Goldman Sachs and Lehman Brothers both reported falling profits after turmoil in the mortgage and wider credit markets led to further writedowns.

However, the results were better than many on Wall Street and in the City feared. Lehman shares almost halved in trading yesterday but were up 41% today while Goldman, led by Lloyd Blankfein, down 4% yesterday, rose 6%.

A third dose of good news was expected to come from the US Federal Reserve tonight, with traders hoping that rates would be cut by 1%-2%.

"Today's a day for good news, with Goldman and Lehman results beating estimates," said Giri Chekuri, head trader at OakBrook Investments in Illinois. "Right now, the focus is these earnings weren't as bad they could have been."

Shares of US mortgage giants Freddie Mac and Fannie Mae rose on hopes their regulator may ease restrictions on how much they can pump into the housing market to prop up the home loans system. The rally came after a major sell-off wiped £51 billion from the value of the UK's biggest companies yesterday on a dramatic day that saw the Bank of England pump an extra £5 billion into frozen money markets.

In London, the main beneficiaries were banking and financial stocks heavily sold in yesterday's bloodbath. Barclays, Royal Bank of Scotland and HSBC were posting gains of more than 5%.