The London Stock Exchange (LSE) today closed nearly 200 points higher despite one of its most disastrous days in recent history when trading in UK shares was suspended for over seven hours.

The FTSE 100 index of leading companies finished the day up 195.6 points at 5,436.3.

All the gains were made this morning, during the first 45 minutes of trading, after details emerged of the US Government's £110 billion bailout of Fannie Mae and Freddie Mac.

More than double the normal number of shares changed hands in London before the market shut, as investors hoped to take advantage of the US rescue of the two mortgage giants.

However, just before 9.00 am, the LSE suspended trading because of a "connectivity issue" and kept the market closed for seven hours. It was reopened at 4.00pm, giving traders just half an hour to complete deals before the market closed at 4.30pm.

One London trader criticised the lack of information from the LSE, stating: "We don’t know how major the implications will be. We haven’t lost money but we’ve lost potential revenue. Brokers aren’t getting commission for trades.”

Today's shutdown is the worst since April 5, 2000 — the last day of the tax year — when trading on the London Stock Exchange was delayed for eight hours.

Because of the suspension in London, traders have been locked out of taking full advantage of the positive side-effects of the US Government’s pledge to prop-up Fannie Mae and Freddie Mac, the loss-making mortgage lenders which together control £3 trillion of the US home loan market.

Traders had hoped to reverse the FTSE's worst week in six years after the index closed down 7 per cent last week. Investors were spooked on poor US employment data and fears over the future of Freddie Mac and Fannie Mae.

In the US, the Dow Jones industrial average closed up 290.43 points to 11,510. Shares in Fannie Mae fell by 88 per cent to 80 cents while Freddie Mac's stock fell by 82 per cent to 89 cents.

It emerged last night that the US Government had taken control of both groups and promised to inject up to £110 billion of US taxpayers' money as one of a series of measures designed to restore order to America's stricken financial system.

Others included the ousting of the chief executives of both companies and the elimination of future dividends to shareholders.

Daniel Mudd, the departing head of Fannie Mae and Richard Syron, who is set to leave Freddie Mac, will share in a combined payoff of $23 million (£13 million) when they leave the mortgage groups.

Mr Mudd is expected to receive $9.3 million in pay and retirement benefits under the terms of his contract, while Mr Syron could walk away with $14.1 million.

The US Government's decision to guarantee the survival of the two groups is good news for British banks and, in turn, British homeowners.

British banks have invested billions of dollars in bonds insured by Freddie and Fannie and they could have translated into huge losses if either group had gone under, leaving banks with even less money to make available for mortgages.

President George Bush said the failure of Freddie or Fannie would have been "unacceptable".

He added: "Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing.

"Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

Henry Paulson, the US Treasury Secretary, said: "A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit.

"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."

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