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US stocks soared as trading opened today, lifting the London market to its highest one-day gain as investors anxiously waited for details of a historic plan by the US Government to rescue its battered banking system.

New York’s Dow Jones industrial average rose 400 points to 11,418, boosted by surging banking stocks, as Henry Paulson, the US Treasury Secretary, prepared to unveil details of the biggest US government bailout since the Great Depression.

Yesterday, the Dow Jones closed 410 higher when it emerged that Mr Paulson was meeting Ben Bernanke, chairman of the Federal Reserve, to find a solution to the financial crisis.

The global stock market rally has been led by banks, and in America, Morgan Stanley, rumoured to be the next bank at risk of seeking a rescue, saw its share rise by 34 per cent today.

Morgan Stanley is believed to be in talks with Wachovia, America's largest bank, and is also discussing a possible increased investment from China Investment Corporation (CIC), a Chinese sovereign wealth fund.

Mr Paulson will announce the rescue at 10am (3pm BST) today in New York, when he is expected to unveil the creation of a federal-backed investment vehicle into which America's banks can dump toxic mortgage-backed securities.

In London, shares sky-rocketed by 9 per cent to mark the FTSE's largest one-day rise since 1987 when it bounced 7.9 per cent two days after “Black Monday”, when stock markets around the world crashed.

Washington today announced a $50 billion (£27.3 billion) plan to guarantee America's money market funds in a move designed to restore confidence to the battered banking system.

The arrangement, personally approved by President Bush, will guarantee money market funds, which hold the pensions and savings of millions of Americans.

Earlier today, the Securities and Exchange Commission (SEC), in conjunction with the UK's Financial Services Authority (FSA), banned the short-selling of stocks.

The SEC said today it will ban the short-selling on 799 financial stocks for 10 days but this could be extended for up to 30 days. In the UK, the FSA has prohibited short-selling, where traders make money by betting a share price will drop, for four months.

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