FTSE soars back above 6,000 mark

The index reversed Thursday's slump with its biggest percentage gain since March 2003, after the US Federal Reserve announced a 0.5% cut in the rate it charges banks to borrow money. The Fed said it had made the move because recent turbulence in financial markets "had the potential to restrain economic growth going forward".

After a volatile start, the Footsie closed 205.3 points higher at 6064.2 - back above the psychological 6,000 mark and recouping £49 billion of the £60 billion losses shipped in the previous day's sell-off.

It was 275 points higher at one stage following the move but fell back as Wall Street's Dow Jones Industrial Average lost its early impetus.

But commentators were unsure how long the Footsie's revival would last following the Fed's intervention. Martin Slaney, head of spread betting at GFT Global Markets, said: "The markets have taken this move as a positive step, but this may prove to be a knee-jerk rally. This looks like a U-turn from the Federal Reserve, which only a few days ago suggested it was not too concerned about the credit squeeze."

He added: "The market turbulence has forced the Fed's hand here, and whilst an emergency cut might give the markets some temporary relief, some might say there is a sense of panic coming from the Fed."

The turnaround in financial markets comes after the Footsie lost 12.5% in the past month. The collapse has been fuelled by worldwide concerns about the exposure of financial institutions to the collapse in the US sub-prime mortgage market. These fears have led to a more cautious approach from lenders, putting pressure on credit markets.

The Fed did not change the more important federal funds rate, which has remained at 5.25% for more than a year.

The intervention comes after US policymakers put billions of dollars in money into the banking system over the past week to ease credit markets. The Fed statement said: "The committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

Chancellor Alistair Darling also moved to reassure markets, saying that the world economy remained strong despite the market turbulence.