International investors were taken on a white-knuckle ride today as London and Wall Street shares oscillated between 200 points down and a few points to the good.

The wild volatility was fuelled by fears that another bank could fall victim to the credit crunch, which last night forced the rescue of US investment bank Bear Stearns by JP Morgan Chase for a knock-down price.

JP Morgan took control of Bear Stearns for $2 a share. They had been trading last week at $89. Lehman Brothers, which will report first quarter results tomorrow, saw its shares plunge 30 per cent to $27.35.

Today, US President, George W. Bush, attempted to reassure the shaken markets after meeting with Henry Paulson, the US Treasury Secretary, and Ben Bernanke, chairman of the US Fed.

President Bush said he backed the decision to bail out Bear Stearns, adding that “in the long run,” the US economy “is going to be fine” and that “the US is on top of the situation".

He said: “Our financial institutions are strong and our capital markets are functioning efficiently and effectively.” President Bush said the US Government will continue to monitor the situation closely.

In London, the FTSE 100 index of leading shares retraced a 200-point fall but remained down 100 by early afternoon. Financial jitters knocked sterling down to an 11-year low at 93.4p - the lowest point against a number of currencies since January 1997.

Falling UK stocks wiped £10 billion off bank shares. Worst hit was HBOS, off more than 11 per cent, Royal Bank of Scotland, down 7 per cent, Alliance &Leicester, 6 per cent lower and Barclays, 5 per cent down.

This afternoon, MF Global, the broker spun off from Man Group last year, saw its shares plunge 71 per cent to $5.01.

Last month, the company became the latest victim of a rogue trader when it discovered that Evan Dooley had cost it $141.5 million after making bad bets on wheat prices.

The gloom was accompanied by a bank stampede in London for the £5 billion credit offered today by the Bank of England. The bank was deluged for almost five times that amount as demands totalled £23.6 billion.

The Bank of England said the action is being taken in response to conditions in the short-term money markets and is closely monitoring market conditions along with other central banks.

The London interbank offered rate (Libor), which is the cost banks charge to lend to each other, rose from 5.93 per cent to 5.96 per cent for three-month borrowing. For one-month lending, the rate rose from 5.70 to 5.72 per cent.

The Bank of Japan injected $4.1 billion (£2 billion) into Japan’s money market as an emergency measure to bring down interest rates amid worries about global credit problems.

Japan’s central bank said it had not acted in conjunction with the US Federal Reserve. The European Central Bank declined to comment on speculation that its governing council will hold emergency meetings today.

Commodities rose sharply as investors sought refuge from the region's volatile equity markets.

Gold for immediate delivery soared 3 per cent to a record $1,032 an ounce before easing to just over $1,000 and oil which hit a $111.80 a barrel eased back to $110.09. The yen hit a 12-year high against the dollar as Tokyo share prices tumbled to a 31-month low this morning.

The Japanese Government, which has a long reputation for currency intervention, issued its sternest warning yet to the markets, with the Minister of Finance declaring that the day’s moves had been “excessive”.

The sharp drop in London shares followed falls across Asia. Tokyo stocks, many of which are large exporters and dangerously exposed to the strength of the yen, took a 3 per cent dive that was only rescued from a worse collapse by anaemic buying of the banking sector late in the session.

In Hong Kong, the Hang Seng index was down 4.3 per cent, its lowest level in seven months and Shanghai’s composite index fell 3.6 per cent.

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