Stock markets soared yesterday after governments committed trillions of dollars in an unprecedented attempt to prevent the collapse of the international financial system.

World shares made their biggest one-day advance for 19 years as countries across four continents detailed the extraordinary lengths to which they will go to bail out stricken banks.

France, Spain, Italy, Germany, Austria, Finland, Sweden, Australia, New Zealand, Indonesia, India, South Korea, Japan and Qatar all took measures to guarantee deposits or improve bank liquidity.

In America Hank Paulson, the Treasury Secretary, moved to implement British-style plans for the Administration to take a stake in ailing US banks. President Bush is expected to unveil firm plans today to use $250 billion of taxpayer funds to seize stakes in nine of America’s biggest banks as part of a move to stabilise the country’s banking system.

The co-ordinated international moves sparked the biggest single-day rally since the rebound after the Black Monday crash of October 1987. On Wall Street, the Dow Jones rose 936 points, or 11 per cent, its biggest one-day point gain and the biggest percentage rise since 1933. In London, the FTSE 100 closed up more than 8 per cent, its second-biggest daily percentage rise.

European markets also surged on relief, with the CAC 40 in Paris jumping 11 per cent, along with the Dax 30 in Frankfurt, which also rose 11 per cent. The groundswell of optimism had started overnight in the Far East, where the Hang Seng index in Hong Kong shot up by 10 per cent.

After meeting Silvio Berlusconi, the Italian Prime Minister, President Bush said: “These are tough times for our economies, yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to co-ordinate our response to this global financial crisis.”

It was the first day that traders could react to news that the UK Treasury had taken unprecedented steps to stabilise the British banking system by assuming a majority stake in Royal Bank of Scotland, while committing an overall £37 billion to it, HBOS and Lloyds TSB.

A few hours later, France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion (£1,000 billion) to guarantee bank loans and take stakes in lenders to try to halt the meltdown of the financial infrastructure.

The US Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank also said that they would lend commercial banks unlimited dollar liquidity funds to ease clogged interbank lending rates.

Paul Krugman, of Princeton University, who won the Nobel Prize for Economics yesterday, said: “I’m slightly less terrified today than I was on Friday. We’re going to have a recession and perhaps a prolonged one, but perhaps not a collapse.”

In Britain, the banking crisis claimed its most senior victims after Gordon Brown outlined how he was using £37 billion of taxpayers’ money to nationalise the Royal Bank of Scotland (RBS), HBOS and Lloyds TSB. Despite the rescue package, shares in the three banks fell sharply.

Four top bankers announced that they would quit. Three of them — Sir Fred Goodwin, chief executive of RBS, Andy Hornby, the HBOS chief, and Lord Stevenson of Coddenham, the HBOS chairman — will between them forgo bonuses of £3 million.

Mr Brown’s announcement means that the Government will became the country’s biggest mortgage provider. The Treasury now controls 45 per cent of the mortgage market, sparking concerns it might try to manipulate the housing market for political advantage.

The Prime Minister said that the newly nationalised banks had agreed to restore lending to 2007 levels. The claim set alarm bells ringing that banks were being directed to return to the record lending levels before the credit crunch began to bite. The Council of Mortgage Lenders said that such a move would be reckless.

Alistair Darling, the Chancellor, said later that there was no question of ministers telling banks how much to lend. “We do not want a return to the irresponsible problems and difficulties that we have had in the past,” he said. But the reference to 2007 lending levels raised concerns. Vince Cable, Lib Dem Treasury spokesman, said there would be a temptation for the Government to pump credit into the housing market, which would be a “disastrous misuse of taxpayers’ money.”

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