The US Federal Reserve unveiled a barrage of measures yesterday to lend stressed financial institutions more funds, and for longer periods, as it stepped up its drive to limit the fallout from America’s housing slump and the global credit crunch.

In a signal of concern over the still-fragile state of world financial markets, highlighted only two days ago by the IMF, the Fed expanded its emergency lending scheme for Wall Street investment banks for the fourth time in five months.

The move sparked a sharp rally in US blue-chip shares, with the Dow Jones industrial average climbing 186.10 points to close at 11,583.70.

In a surprise move, the Fed said that it would extend for an extra six months the cheap financing facility for investment banks that had been due to expire at the end of September.

The scheme, the Primary Dealer Credit Facility, was set up in March in the wake of the near-collapse of Bear Stearns. It marked the first time since the 1930s that the Fed had made loans available to institutions other than deposit-taking commercial banks.

The Fed also said that it would expand a parallel scheme that lends liquid Treasury bonds to investment banks in return for harder-to-trade securities. The Term Securities Lending Facility will be kept open until the end of January. Investment banks will be eligible to bid in an auction for options to take up $50 billion (£25 billion) of extra potential borrowing through the scheme, in addition to $200 billion of funding already made available.

Fed lending to mainstream US commercial banks was also beefed up yesterday. The Fed will make loans under its Term Auction Facility for banks available for up to 84 days, against the present 28-day limit.

Economists said that the moves came after a resurgence in financial pressures, emphasised by the International Monetary Fund this week when it sounded a warning over the danger of another wave of losses for banks as the American housing market continues to plunge. There was a further boost for leading Western banks yesterday in a separate move by US accounting standard-setters that will spare institutions from taking on $5,000 billion of debts on to their balance sheets. The US Financial Accounting Standards Board voted to delay until January 2010 new rules forcing banks to include more off-balance-sheet vehicles in their accounts.

With revived market strains also evident in Europe, the European Central Bank (ECB) and the Swiss National Bank announced joint action with the Fed. They are to auction dollar loans to European institutions for 84-day terms, in addition to 28-day loans already available. To facilitate that, the Fed said it would extend a dollar swap line with the ECB and the Swiss bank.

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