As the blue chips clawed back some of their losses yesterday, BT was one of the few stocks to keep on falling. Fears were raised that its giant pension fund - whose total liabilities of about £38 billion are almost twice BT’s market value – had swung into a deficit because of the fall in the value of shares in its equity-laden fund.

BT ended the day down 5p at 252½p. Morgan Stanley said that the fund may need another cash injection on top of the £850 million pumped in last autumn. Dresdner Kleinwort estimates that falling equity values have turned the £2.1 billion surplus in the fund in September to a shortfall of around £500 million.

The FTSE 100 ended up 161.9 points at 5,740.1 after what one trader called “a day of confusion”, in which the index seesawed, rising as much as 185.8 points and falling by as many as 239.5. The Fed’s decision to cut rates sharply finally made up minds, sending all those stocks that have been heavily shorted soaring. Traders reported some genuine bargain-hunting, but also a high proportion of programme trades by computer. “I think we’re in for another sell-off soon,” one said. Gold-man Sachs said that it believed London shares had farther to fall from Monday’s close because most company earnings forecasts were still too high.

Wolseley, the most exposed to the United States, rose 67½p to 757p. Tui Travel, which lost heavily on Monday and is to report next week, bounced 19.7p to 225.7p.

Yet the banks provided the most impetus, with Lloyds TSB up 34½p at 408p and Royal Bank of Scotland up 30½p at 373¼p. Morgan Stanley changed its tone on British banks, saying that RBS, HSBC - up 28p to 740p – Lloyds TSB and Standard Chartered, up 52p at £15.34, had fallen too far. HBOS, up 42p to 652½p, was trading at the level of its tangible net assets, which gives no value for Clerical Medical and its private equity arm.

Scottish & Newcastle fell 10p to 746p amid fears that Carlsberg may not be able to get away a share issue to finance its joint bid with Heineken at 800p a share. There is talk in Denmark that it will ask the Takeover Panel to extend the deadline from this Thursday. Rio Tinto rose 67p to £42.95 while BHP Billiton, its predator, rose 65p to £13.00, making its all-share offer look increasingly attractive.

Big-ticket-item retailers were big gainers on speculation of a rate cut by the Bank of England next month. Kingfisher, the B&Q owner, rose 12.2p to 141.9p. Tony Shiret, of Credit Suisse, calculates that a buyout fund could pay 150p if it sold off properties. Home Retail Group, the owner of Home-base, was up 24.7p at 298.2p.

There was talk of stake-building at Restaurant Group, up 1¼p to 131¼p. There are also suggestions that Tim Martin, the JD Wetherspoon founder, may be tempted to launch a buyout of his pub group. Blue Oar Securities calculates that he could fund a bid at about 365p out of cashflow. Wether-spoon ended the day up 15½p at 308p.

New York: Wall Street climbed back from an early plunge after the Federal Reserve implemented its big cut in interest rates with the aim of restoring stability to a faltering US economy. The Dow Jones industrial average index, down 465 points at the opening, recovered to be down 125 points at midday at 11,974.3 and closed at 11,971.20, down 128.10.

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