Shares around the world gyrated tonight as the US government unveiled its giant rescue plan for Wall Street's biggest banks.

President Bush, Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke will spend $250 billion (£142 billion) of US taxpayers' money part-nationalising the biggest banks in return for them resuming their lending to home- owners and businesses.

The FTSE 100 index jumped almost 280 points at one stage while the Dow Jones Average shot up in the opening minutes. But the gains were wiped out in the hours after the announcement as profit-takers moved in. By this evening, the FTSE was up 16.5 points at 4273.4 while the Dow was off 55.12 points at 9332.49.

The US bailout will work in a similar way to Gordon Brown's rescue plan for British banks, with nine American firms issuing special shares to the government in return for capital.

Paulson said he had ordered the banks "not to take this capital to hoard it, but to deploy it". The cash comes from the $700 billion pot of US taxpayer money granted for Paulson's use by a controversial Finance Act passed by Congress at the beginning of the month. As in the UK, the banks will issue "preferred stock" to the government in return for cash.

Banks taking up the offer are reportedly Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Wells Fargo, State Street, Bank of America and Bank of New York Mellon.

The plan had drawn fire from some quarters of Wall Street, which complained it was so vast it would give the impression all banks were struggling.

But Paulson said: "These are healthy institutions, and they have taken this step for the good of the US economy. As they increase their capital base, they will be able to increase their funding to US consumers and businesses."

Following a faltering address from Bush, Paulson looked supremely confident as he declared: "We are acting with unprecedented speed, taking unique measures we never thought would be necessary."

He moved to counter criticism from some senior politicians that the nationalisation plan was akin to socialism, saying: "Government owning a stake in any private US company is objectionable to most Americans, me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."

This echoed Bush's statement that "these measures are not intended to take over the free market but to preserve it".

In another echo of the UK plan, Paulson, who earned hundreds of millions of dollars during his career at Goldman Sachs, said the participating banks must accept curbs on executive pay and golden parachutes for executives when they leave.

Bernanke hailed the "extraordinary collaboration" between global central banks and governments to come up with the huge, co-ordinated package of bailouts for the banking system.

Hinting of more dramatic action to come, he said: "We will not stand down until we have achieved our goals of restoring and reviving our financial system."

He added: "I am not suggesting the way forward will be easy but this will help put the economy back on a path to healthy, vigorous growth."