Shares in Barclays jumped 9% today after it was given a clean bill of health by the City watchdog.

The stock rose 13.2p to 153.3p after the Financial Services Authority concluded the bank did not need to raise extra cash to survive.

Barclays shares have more than tripled since their all-time low of 51p in January and have rallied 154% from 61p in the past three weeks.

However, it is still a hugely volatile stock and has lost 80% of its value since peaking at 763p two years ago.

The rally today came after an extreme stress test by the FSA found Barclays does not need any fresh capital from shareholders or the taxpayer.

The test, based on a more vicious recession than that suffered in the early 1980s, also found Barclays does not need to join the Government's Asset Protection Scheme, set up to insure hundreds of billions of pounds of toxic assets held by banks.

The deadline for joining the scheme is next Tuesday, and Barclays has been plagued by rumours it would have to insure up to £80 billion. However, Barclays has not ruled out joining if it proves profitable.

The bank's shares have also been buoyed by hopes of an imminent sale of its iShares business for around £4 billion and a bullish note from Credit Suisse banking analyst Jonathan Pierce.

The FSA ran similar tests on Royal Bank of Scotland and Lloyds Banking, owner of failed bank HBOS.

Both banks subsequently piled billions of pounds of toxic assets into the Government insurance scheme. RBS put in £325 billion and Lloyds £260 billion, the majority of which came from the Bank of Scotland's corporate book which lent and invested billions of pounds in areas such as property.

The deal took the Government stake in RBS to as high as 95% and in Lloyds to 77%, nationalising the banks in all but name.

Barclays chief executive John Varley has long been desperate to avoid state aid and last year raised £12 billion, controversially seeking out international investors from places such as the Middle East and Singapore, which angered some institutions in London. That capital-raising came after a stern stress test by the FSA in October following the collapse of Wall Street investment bank Lehman Brothers.

The clean bill of health could prove pivotal, not just for Barclays but also the FSA and its chairman Lord Turner, who last week published a review on banking regulation.

If it turns out the bank does need to raise more cash, Turner and Varley will struggle to survive.

Suitors for the iShares business include Goldman Sachs, US private-equity firm Hellman & Friedman and Bain Capital.