American blue chip shares suffered renewed volatility in choppy trading on Wall Street yesterday, denting hopes that last week’s surprise intervention by the US Federal Reserve would snuff out upheavals in global markets.

In a symptom that turbulence is lingering in the markets, US Treasury bonds rose again as investors sought safe havens. Steep gains in three-month Treasury bills saw their yield slide to the lowest since late 2004.

The City was in an upbeat mood as trading opened yesterday morning amid optimism that the Fed’s move to cut rates for short-term lending to US banks would stem recent turmoil.

London shares initially leapt, with the FTSE 100 index jumping by 100 points. Those gains were sharply eroded later, however, and the FTSE closed up only 14.5 points as credit crunch jitters reasserted themselves, sending New York markets tumbling as dealing resumed on Wall Street. In a blow to hopes for greater calm, the Dow Jones industrial average fell more than 80 points by early afternoon. The S&P 500 index of US blue chips also shed 1 per cent as anxieties lingered over institutions’ hidden liabilities from the shake-out in the US sub-prime home loans sector.

Markets recovered some poise by the New York close, however, with the Dow ending the day up 42.2 points at 13,121.30, while the S&P closed down a meagre 0.4 points at 1,445.55.

The volatility came despite upbeat predictions from policymakers that the worst of the credit panic is over and that global growth will suffer only a limited setback.

Christine Lagarde, the French Economy Minister, said: “I think the worst is behind us.” Rodrigo de Rato, managing director of the International Monetary Fund, said: “As we understand, there will be some impact on growth but we still believe that prospects for the world economy are good.”

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax