Relief for investors as markets rebound

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Stock markets across the world rebounded yesterday, providing the first relief for investors since the terrorist attacks two weeks ago sparked a mass sell-off of shares. But analysts warned this might only be a short-term reprieve ahead of a likely outbreak of military action.

Stock markets across the world rebounded yesterday, providing the first relief for investors since the terrorist attacks two weeks ago sparked a mass sell-off of shares. But analysts warned this might only be a short-term reprieve ahead of a likely outbreak of military action.

In London, the FTSE 100 index of the UK's leading companies surged more than 4 per cent, as investors clawed back some of last week's falls. It closed up 180 points at 4,613.9, adding £43bn to the value of blue-chip shares. On Wall Street, the Dow Jones index was up 4.2 per cent by midday. Last week, it plunged 14.3 per cent, its worst five-day fall since 1933.

Paris and Frankfurt also had a good start to the week, while in Milan the Italian stock market surged more than 8 per cent.

Traders said investors were hunting for bargains after nine days of steep falls.

Jeremy Batstone, director of NatWest Stockbrokers, said: "We just don't know long the rebound will last for or how sharp it will be. But today's rise will be well received because what is required is that calm is restored to the market."

Share prices in London were also boosted by separate moves by investment funds and financial regulators to prevent mass selling. The Financial Services Authority relaxed rules that mean life insurance companies, which own large amounts of shares, are not forced to sell stocks to meet regulations governing the size of their reserves.

Meanwhile, fund managers with control over hundreds of billions of pounds stopped lending shares to speculative traders in an attempt to protect investors bruised by stock market losses.

HBoS, the banking group formed from the merger of Halifax and Bank of Scotland, the insurer Legal & General and the fund manager Foreign & Colonial said they would no longer lend stocks. The practice allows hedge funds to drive the market down by selling shares they have borrowed and buying them back when the price falls.

Separate figures showed sales of Individual Savings Accounts hit their lowest level last month as plummeting share prices deterred investors. The Association of Unit Trusts and Investment Funds warned that September could see another drop. "Anecdotal evidence indicates a significant downturn in volume of sales and redemptions following the terrorist outrage," it said.

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