Traders braced for a manic Monday on stock markets

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Chancellor Alistair Darling flew back from holiday at the weekend with the chaos in financial markets at the top of his agenda.

An emergency tripartite committee of the Treasury, the Bank of England and the Financial Services Authority is expected to convene today to discuss the crisis.

The three departments have been in regular contact "at all levels", a government source said.

The moves come after £63billion was wiped off the FTSE 100 Index on Friday because of signs of a dramatic squeeze on the supply of credit.

The index finished 232.9 points lower at 6038.3.

The European Central Bank, the US Federal Reserve and other government lenders pumped £150billion of emergency cash into markets at the end of the week to stop the wheels of finance grinding to a halt.

The Bank of England has not intervened so far, but it has the power to offer billions of pounds of loans at knock-down rates to high street lenders if the need arises.

On Wall Street, the Dow Jones Industrial Average rallied late on Friday after the US Federal Reserve moved to calm traders' nerves. That could restore some confidence in London today.

But few experts believe the crisis is over. Major lenders are feared to be sitting on massive losses linked to the meltdown in America's sub-prime mortgage market, where high-risk homebuyers were loaned large sums they couldn't repay.

The FTSE 100 has lost 10 per cent of its value since its June peak and an extended deterioration in financial markets could begin to undermine confidence in the broader economy, hitting growth and house prices.

David Jones, chief market analyst at CMC Markets, said: "It would be naive to think the worst is behind us.

"It wouldn't be surprising to see the market test the 6,000 barrier next week."