Trading in London was hit by a seven-hour blackout yesterday as a technical glitch paralysed the London Stock Exchange on what was destined to be one of the busiest days of the year.

Shares surged as the market opened and traders reacted to news that the US Government would bail out the troubled mortgage giants Fannie Mae and Freddie Mac.

However, less than an hour’s dealing was done before connectivity problems forced the LSE to halt trading. Traders were left twiddling their thumbs for most of the day with little to do until the market reopened for the last 30 minutes. The exchange did not reveal what caused the problem and for much of the day many were unsure as to whether the market would reopen at all.

The problem is likely to cost angry traders and brokers millions in lost fees, arguably damages the reputation of London as a financial centre and could also lose the LSE business amid increasingly fierce competition from rival trading platforms, such as Turquoise and Chi-X, neither of which had any problems.

On average more than £7 billion worth of shares are traded each day on the LSE, with nearly 700,000 separate transactions made.

The only bright spot for some was that a lack of trading in equities meant that dealing in commodities and currencies was brisk.

LSE’s own shares rose 41½p to 800p. Overall the FTSE 100 index closed nearly 4 per cent higher, up 205.6 points, at 5,446.3, with the financial sector making the most ground after the overnight news from across the Atlantic. Barclays gained nearly 12 per cent, 37¾p, to close at 355p, HBOS rose 31½p to 307p and Royal Bank of Scotland was 24¾p higher at 244½p.

Hopes that action in the United States would give the country’s struggling housing market a boost lifted Wolseley, the heating and plumbing group that makes most of its sales in America, up 47p to 485p.

British-based housebuilders also rallied, with Barratt Developments rising 18¾p to 165¾p, Taylor Wimpey climbing 6¼p to 61¾p and Persimmon ending the day 36¼p higher at 420p.

GlaxoSmithKline (GSK), the pharmaceuticals group, was the heaviest of only two blue-chip fallers, down 20½p at £12.49½. The group was hit by news that Chris Viehbacher, who heads the company’s North American business, is to stand down. GSK also suffered after analysts at Goldman Sachs downgraded the stock to “sell” from “neutral”, noting its outperformance against the wider sector over the past three months.

ITV climbed 1.8p to 44p after a director of Mediaset, Italy’s biggest independent broadcaster, controlled by the family of Silvio Berlusconi, the Prime Minister, said that it was looking at a number of possible acquisitions, including the broadcaster.

In the FTSE 250 Micro Focus International, the software group, was the biggest faller, sliding 10¾p to 280p, after Golden Gate Private Equity proposed to sell 7½ per cent of its 35 per cent holding in the company through UBS at 260p per share.

— New York: Shares on Wall Street rose amid hopes that a government takeover of Fannie Mae and Freddie Mac would give the housing market a boost and stabilise credit markets. The Dow Jones industrial average closed at 11,510.70 points, up 289.80.

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