Gordon Brown today called on countries with large reserves to increase the funds available to the International Monetary Fund to help nations struggling with the financial crisis.

In his latest initiative to prevent the problems affecting places like Hungary spreading around the world, Mr Brown called for a substantial increase to the $250 billion the IMF has at its disposal to lend.

The Prime Minister and other world leaders doubt whether that facility is going to be enough to meet the problems emerging in some countries, and there is particular concern over Hungary. The prospect of the financial system in an EU country failing is unthinkable for its leading members.

“It is in every nation’s interest and in the interests of hard-working families in our country and every country that financial contagion does not spread,” said the Prime Minister.

Mr Brown did not rule out a British contribution to the enhanced fund, but made clear he believed the bulk of any additional money should come from China and the oil rich states of the Gulf.

Yesterday, the pound fell to its lowest level in six years and shares endured more volatile trading, amid expectations that the UK government was preparing to ditch its fiscal rules restricting debt and that an emergency cut in UK interest rates was imminent.

Today, however, the FTSE 100 Index surged more than 70 points in the first hour of trading, and by 11:45am was up 177.46 to break through the 4000 point barrier, reaching 4030.05.

Investor confidence was said to have been boosted by better-than-expected results from two major businesses: the oil firm BP, and Aviva, the parent company of Norwich Union. Other stocks in the banking sector bobbed upwards after Aviva provided further detail and reassurances on its capital strength, with HSBC up 34p to 697p.

The French President invited Mr Brown to his private residence, La Lanterne, for an ad hoc meeting set up during a phone conversation between the two leaders on Sunday.

Mr Brown's talks with Mr Sarkozy, who currently holds the presidency of the European Union, formed part of an intense series of contacts with international leaders as they seek to develop a co-ordinated response to the financial meltdown facing almost all economies in the world.

In a brief press conference before the talks, the leaders reiterated that they wanted to work together to ensure a coordinated response. The French President said he was working “hand in glove” with Mr Brown to coordinate Europe’s response to the financial downturn and would continue to do so.

In the last few days alone, Mr Brown has spoken several times by phone to Dominique Strauss-Kahn, the International Monetary Fund managing director, and to Hungarian Prime Minister Ferenc Gyurcsany, as well as to the Indian Prime Minister, Manmohan Singh, and Brazil’s President Lula da Silva. He is due to meet Angela Merkel, the German Chancellor, on Thursday.

The round of international talks comes as Alistair Darling prepares to ditch the Government’s fiscal rules and replace them with new targets on public borrowing to accommodate the new economic climate.

In the Chancellor’s annual Mais lecture tomorrow, Mr Darling is expected to confirm that he is scrapping the rules on borrowing introduced by Mr Brown as Chancellor in 1997, which laid down that the Government can only borrow to invest over an economic cycle, and that public sector net debt should be no more than 40 per cent of national income.

Public debt hit a record £37.6 billion between April and September - higher than the whole of the previous year. The Chancellor’s forecasts of £43 billion of borrowing this year are in tatters and some experts have warned that debt could balloon to £120 billion in three years.

The credit insurance group Coface said today it had downgraded the ratings of Britain, Ireland and Iceland and had put Italian and French debt under negative watch.

“The credit crisis is spreading in Europe as the financial crisis worsens. This is leading to a major tightening up of banking credit, and a plunge in confidence by economic actors and a drop in activity,” Coface said in a statement.

Coface downgraded Britain and Ireland’s ratings to from ’A1’ to ’A2’. France remained at ’A1’ but was placed on negative watch, said Coface, noting that it was was “also affected by the credit crisis”, with its transport, construction and real estate sectors hardest hit.

Also on negative watch was Italy, which has an ’A2’ rating and faces higher costs and tightened credit, leading to “deteriorating risks for businesses,” Coface said.

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