UK looks to US to ease market chaos

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Treasury Secretary Hank Paulson is looking to rescue banks from the "toxic" assets at the heart of the crisis that has hit Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns and led to the takeover of UK giant Halifax Bank of Scotland. He said he hoped to have a solution "aimed right at the heart of this problem".

News of the plan saw Wall Street's Dow Jones post its biggest points gain for nearly six years on Thursday night, up 410 points or nearly 4%. Asian markets also closed well up.

In London, the FTSE 100 Index is expected to soar as much as 280 points - or nearly 6%.

Friday will also see the immediate reaction to the City watchdog's own bid to reduce market volatility through a ban on speculators profiting from falling share prices.

Under the Financial Services Authority (FSA) ruling, traders are not allowed to "short" positions in listed financial companies - a practice known as "short selling". The ban will last for at least the next four months.

"Short-selling" is when investors borrow stocks in a company to sell it, hoping to buy it back at a cheaper price later on and return it, pocketing the difference as profit.

The practice has been blamed for a run on HBOS shares this week, which led to the group agreeing a £12 billion takeover offer from rival Lloyds TSB.

Financial Services Authority chief executive Hector Sants said: "While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets.

"We have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."