Shares rebound on US rate cut hopes

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The FTSE 100 Index soared 3.5% into positive territory to close 191.4 points up at 5605.8, buoyed by a near-300 points surge in early Wall Street trading.

The US Federal Reserve later confirmed its widely expected cut, trimming rates by 0.75% to 2.25%.

Tuesday's gains saw the Footsie recover the bulk of the losses seen on Monday when it fell by almost 4%, slumping to its lowest level for more than two years.

Global markets shaken by the rescue and cut-price sale of troubled US investment bank Bear Stearns also took comfort in better than expected results from fellow financial firms Lehman Brothers and Goldman Sachs.

Both companies posted first-quarter profits lower than last year, although their shares rose as results failed to fulfil the worst fears of analysts.

The improved sentiment pushed Wall Street's Dow Jones Industrial Average more than 2% higher, with the Footsie and markets across Europe also following suit.

The interest rate cut from the Fed marked its second move in three days to ease financial and economic turmoil after a rare Sunday intervention saw it lower the rate at which it lends to banks by 0.25%.

The Bank of England on Monday also made a bid to calm jittery markets amid the credit squeeze, pumping an extra £5 billion into frozen money markets.