Stock markets in London and Europe bounced yesterday as moves by central banks to inject funds appeared to soothe investors nerves over an impending global credit crunch.

The FTSE 100 index of leading shares closed up 180.7 points after suffering its biggest one-day points loss in more than six years on Friday, as panicked investors rushed to pull out cash, fearing a collapse of the financial markets linked to the risky American mortgage market.

In London, stocks rose across the board, led by mining companies and financial institutions, which had been hit hard by Friday’s rout. Royal Bank of Scotland, HSBC and Barclays were all among the top gainers in Europe, helping to push the FTSEurofirst 300 to its highest daily percentage gain for 15 months.

The European Central Bank helped to calm frayed nerves by pumping an additional €47.7 billion (£32.3 billion) of cash into the markets, on top of its previous €150 billion at the end of last week. Investors had perceived the ECB’s surprise move overnight on Thursday and Friday as an indication that there was more bad news to come and that the banks were sitting on billions of dollars worth of undisclosed losses related to sub-prime mortgages lent to low-income American households.

But some investors believed the sell-off had gone too far and they got back into buying mode, even as Goldman Sachs admitted it had to prop up one of its hedge funds with a multibillion-dollar bailout in the wake of last week’s severe market turbulence.

Still, things are far from back to normal and analysts believe there could be months of turmoil ahead as banks and hedge funds gradually eke out details of losses linked to sub-prime, risky loans to private equity and last week’s hammering in the markets.

George Magnus, an analyst with UBS in London, who in March was one of the first to warn of the looming credit crunch, said yesterday: “Despite many ‘unknowns’, a few outcomes seem certain. Losses will continue to mount . . . market volatility will remain elevated, as more losses are reported.”

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