Shares surge after US banking move

A 6.8% jump for the Dow Jones Industrial Index after the US Government's toxic asset plan was revealed fired Barclays and Royal Bank of Scotland more than 6% higher. Lloyds Banking Group was ahead 4%.

And the FTSE 100 Index kept hold of the 2.9% gain seen on Monday on the back of the US Treasury's plan to free up the frozen credit market.

Treasury Secretary Timothy Geithner detailed plans in which low-interest loans and up to 100 billion dollars (£69 billion) of bail-out money would be used to entice private sector investors into buying up about 500 billion dollars (£345 billion) of toxic assets.

By taking them off the books of banks, it is hoped that it will encourage liquidity in the market and an easing of the recession. Toxic assets, made up primarily of bad mortgage loans, have clogged up the banking system and compromised the financial sector's ability to raise funds and lend money.

In a document accompanying Monday's announcement, the US Treasury said its plan was better than just waiting for banks to work the bad assets off their balance sheets unassisted.

It said: "Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience.

"But if the government acts alone in directing purchasing legacy assets, taxpayers will take on all the risk of such purchases - along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets."

President Barack Obama said the move on toxic assets would be "absolutely critical" in getting credit flowing again. He added: "It is not going to happen overnight - there is still great fragility in the financial system. But we think that we are moving in the right direction."

The announcement was immediately welcomed by the markets - the Dow Jones ending up 497.48 points at 7,775.86, a rise of 6.8% and on the back of a rally now into its second week. The Hang Seng index in Hong Kong closed 3% higher.