City cautious but hopeful as banks start to regroup

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The FTSE moved up 67.62 points, or 1.5 per cent, to 4434.31 as dealing floors opened for business, with bank shares leading the way forward.

Although the mood remains fractious at best, the hope was that interest rate cuts across the world and the UK government's historic banking bail-out would stabilise markets.

The story was the same across Europe, with the French, German and Italian stock markets all heading higher.

Bank shares led the FTSE gain. HBOS was up almost 20 per cent, while Royal Bank of Scotland also showed signs of life, up 17 per cent.

Trading volumes were still slight, reflecting investors' reluctance to commit much money to the market.

Rik Zwaneveld at AFS Brokers said: "Markets are not turning positive, they are recovering from heavy losses. The sentiment has not really improved."

Henk Potts at Barclays Wealth added: "The measures we have seen taken should provide a level of confidence. It shows the authorities are prepared to use every weapon to avoid a long-term recession."