World shares rally on Fed rates shock

The FTSE 100 index opened up 157.5 at 6440.8 in London following yesterday's rally of just over 100 points. European markets were also on the rise and Asian markets made their biggest gains for a month.

It followed massive gains on Wall Street overnight, where the Dow Jones Industrial Average jumped 336 points to close at 13,739 - the first increase of more than 300 points since October 2002.

The worldwide rally came in the wake of last night's aggressive decision by the Fed to cut its benchmark lending rate by half a percentage point from 5.25% to 4.75% rather than the quarter-point expected. It was the first cut for four years, and at least one more is expected before the end of 2007.

Richard Hunter of Hargreaves Lansdown in London said: "The markets have reacted very strongly to the Fed's decision. I was a little bit surprised by the strength of the rally on Wall Street because the cut was expected, but what has surprised the market over there is the severity of the cut at half a percentage point."

In Japan, the Nikkei 225 was up 3.7%. Hong Kong's Hang Seng index gained 4.1%. The Bank of Japan kept interest rates on hold at 0.5% this morning.

In Europe, the CAC, Ibex and OMX were up between 2.5% and 3% while the Dax gained 1%.

The Fed's move boosted expectations that the Bank of England will follow suit and cut interest rates in Britain to shore up the economy.

Figures yesterday showed that inflation fell from 1.9% to 1.8% in August, leaving it comfortably below the Government's target of 2% and paving the way for the next move in interest rates to be down.

The fall in interest rates in the US sent the dollar plummeting against currencies around the world overnight.

The pound was up 0.01 cents against the dollar today to $2.015, consolidating massive gains last night.

It also sent the cost of crude prices in New York above $82 a barrel amid hopes that the cut in rates would bolster demand for fuel.