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Stock markets across the globe soared today as investors were spurred by the possibility of the biggest bailout in American history.

Leading London stocks surged by nearly 400 points this morning, led by a massive rise in banking shares, which were also buoyed by the Financial Services Authority's (FSA) decision to ban short-selling from midnight. The FTSE 100 was this morning on course for the best daily performance in its history, gaining nearly eight per cent.

In Europe, Germany's Dax index rose 237.98 points to 6101.4 and France's Cac 40 rose 239.27 points to 4197.13.

Markets in Asia also soared after a week of steep falls. In Hong Kong, the Hang Seng rose nearly 10 per cent, in Shanghai leading stocks increased by 9.5 per cent, while shares in Japan and Korea also made strong gains.

The buying spree was sparked by talks between the US Treasury Department and the Federal Reserve to find a solution to the credit crisis that has swept across Wall Street into the global financial markets.

Henry Paulson, the US Treasury Secretary, and Ben Bernanke, chairman of the Federal Reserve, are examining proposals to clear the illiquid assets, backed by mortgage debt, that have crippled the financial sector.

It is understood that the US is considering pooling the toxic assets and putting them into a government-backed vehicle, which could swell to hundreds of billions of dollars.

It is not yet know how much the bailout will cost US taxpayers, but so far the US Government has pledged nearly $600 million (£334 million) to rescue some of the largest financial institutions.

Most recently it agreed a $85 billion loan to AIG, the US insurance giant, and will support Fannie Mae and Freddie Mac to the tune of $200 billion.

It also helped bail out Bear Stearns when it was acquired by JP Morgan earlier this year. But, on Monday, it refused to rescue Lehman Brothers, which was forced to file for bankruptcy.

Another option, according to The Wall Street Journal, is the creation of federal insurance for investors in money-market mutual funds. This would guard against an outflow of funds as consumers start to worry about even safe investments.

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