Shares in London surged by over 180 points on Monday after details emerged of a plan by the US Government to secure the future of Citigroup, once America's largest bank.

The FTSE 100 index of leading blue chip shares rose by 180.2 points to 3,961.17, while the pound gained against the dollar, rising to $150.11, buoyed on the deal to save Citigroup which was struck after a weekend of crisis talks.

Investors were also cheered by a strong finish on America's Dow Jones industrial average, which finished almost 500 points higher on Friday.

The deal, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), will see the Government take a $20 billion stake in the bank in return for guaranteeing around $306bn of risky assets on Citigroup's balance sheet.

London shares were led by mining, insurance and banking stocks.

Fresnillo, the gold and silver mining giant, saw its shares rise 19.3 per cent to 125.7p. While Barclays, which today put its plan to raise £7 billion in capital to a shareholder vote, also surged, rising 8.93 per cent to 144.1p.

The insurance sector suffered heavy falls last week but today Prudential made a recovery, rising 11 per cent.

UK shares rallied ahead of the Pre-Budget Report, due to be delivered by Chancellor Alistair Darling at 3.30 this afternoon, when he is expected to reveal a number of initiatives to stimulate the kick-start the faltering economy.

The Chancellor is expected to announce a new top rate of tax of 45 per cent that will apply to those earning more than £150,000.

The new rate – which is likely to come into effect immediately after the next general election – is expected to be among the deferred tax rises announced to show how the Treasury intends to rebalance the books. It will affect nearly 300,000 people and raise about £1.2 billion.

Borrowing will rise sharply to record levels next year after Mr Darling today slashes VAT to 15 per cent, cuts income tax by £120 for those on the basic rate and postpones planned rises in vehicle duty and corporation tax.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive