Stocks around the world rallied again today as the latest bank rescue plan was unveiled by the US government.

With it ready to take stakes in the largest banks including Goldman Sachs and Morgan Stanley, investors bet the worst of the global financial meltdown could be over.

The FTSE 100 was up 5.63%, rising 239.46 points to 4496.36 and the German and French markets followed suit.

Oil and foreign mining shares were the biggest risers in London, though the banks also gained.

However, some insist this is a "sucker's rally" and predict the bounce will be reversed before long. Research by Goldman Sachs indicates that some of the shrewdest investors have not joined the party choosing instead to shift their holdings into cash.

Hedge funds have moved $400 billion (£220 billion) into cash in recent weeks, fearing that the bank bail out won't work, says analyst David Kostin.

In some cases they have moved into cash because they face redemption calls from investors, but others are betting markets will remain in bear territory.

Cohen, the hedge fund manager who runs the £7 billion SAC Capital, and John Paulson, who runs a £20 billion fund, have put almost half their assets in cash. Paulson made billions from betting against the US housing market.

His namesake, US Treasury Secretary Hank Paulson, today made a statement alongside outlining his new plan. By injecting capital and taking preference shares in the banks, he hopes to steady Wall Street and allow the US taxpayer some of the upside once the economy recovers.

President Bush said: "We are taking unprecedented, aggressive steps to deal with the financial crisis." He added: "It will take time for our efforts to have their full impact but the American people can have confidence about our long term economic future."

Capital Economics said told clients today: "Measures announced by the UK Government and other world policymakers to support the banking sector may have avoided the unthinkable scenario of a full-scale meltdown in the financial system and a 1930s-style depression. But they are unlikely to prevent a 1990s-style recession which will see unemployment rise sharply, public borrowing soar and inflation plummet."