FTSE soars after US rates cut

London's leading shares surged back past the 6,000 mark today after US policymakers made a dramatic intervention to soothe credit market turmoil.

The FTSE 100 Index leapt more than 3% after the US Federal Reserve announced a 0.5% cut in the rate it charges banks to borrow money.

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The Fed said it had made the move as deterioration in financial markets "had the potential to restrain economic growth going forward".

The Footsie soared more than 200 points - or 3.5% - on the news, recouping almost all of the losses shipped by the benchmark index in the market sell-off yesterday.

The increase followed expectations that Wall Street's Dow Jones Industrial Average would also open higher.

But the Fed did not change the more important federal funds rate, which has remained at 5.25% for more than a year.

Today's latest intervention comes after US policymakers put billions of dollars in money into the banking system over the past week to ease credit markets.

ING economist Rob Carnell said: "This move should be seen as more of a reassurance step, should interbank liquidity begin to dry up again."

The Fed statement said: "The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

Chancellor Alistair Darling added reassurance earlier today, saying that the world economy remained strong despite the market turbulence.

The sudden reversal in financial markets comes after the Footsie lost 12.5% in the past month, with nearly £60 billion wiped from leading shares yesterday.

The collapse has been fuelled by worldwide concerns about the exposure of financial institutions to the collapse in the US sub-prime mortgage market.

These fears have led to a more cautious approach from lenders, putting pressure on credit markets.

Mining stocks led the recovery in London, showing gains of more than 8%, while financial stocks hit by heavy falls in recent days - such as mortgage lender Northern Rock and investment firm Man Group - were also back on the front foot.

The Dow opened 2% higher but there were doubts among some commentators over whether the Footsie's revival would last.

Martin Slaney, head of spread betting at GFT Global Markets, said: "The markets have taken this move as a positive step, but this may prove to be a knee-jerk rally.

"This looks like a U-turn from the Federal Reserve, which only a few days ago suggested it was not too concerned about the credit squeeze."

He added: "The market turbulence has forced the Fed's hand here, and whilst an emergency cut might give the markets some temporary relief, some might say there is a sense of panic coming from the Fed.

"An emergency cut such as this may have worked to calm markets in previous times of turmoil such as after 9/11, but this time it could prove counter-productive."

CMC Markets trader Jimmy Yates added: "A 200 point rally on the FTSE does look to be a little overdone, although after such a big run down over the last month, many stocks were quite simply looking cheap.

"Obviously there's going to be a lot of attention on Wall Street and there's no way that we can assume the recent volatility is now at an end."