The promise of the biggest bailout since the Great Depression triggered surges on stock markets across the world.

The FTSE 100 Index piled on 431.3 points to 5311.3 at the close, a mammoth 8.8 per cent rise, after Henry Paulson, the US Treasury Secretary, gave details of the plan to allow banks to dump their toxic mortgage-backed bonds into a federal investment vehicle.

The unprecedented rise - led by gains for banking stocks - takes the index of leading shares just 100 points below the point at which it began a tumultuous week.

In Paris, the CAC 40 jumped 9.27 per cent, its largest one-day gain, to 4,324.87 points, and in Frankfurt, the DAX was up 5.56 per cent at 6,189.53 points.

The Dow Jones industrial average rose by 399.94 to 11,419.63.

Mr Paulson said the bail-out could cost “hundreds of billions”, but was better than the dire alternative of prolonged turmoil.

Speaking at a press conference this morning, he said that the mortgage-backed investments were "fostering uncertainty about our institutions" and were clogging up America's financial system.

Mr Paulson gave warning that allowing the current uncertainty surrounding the health of the US banking system threatened the personal savings of ordinary Americans and would ultimately hit economic growth, damaging job creation.

He said: "I am convinced that this bold approach will cost American families far less than the alternative - a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."

Following Mr Paulson's eagerly anticipated speech, President George W. Bush said the Government's action to stabilise the banking system was a “pivotal moment for America’s economy", adding: "We must act now to protect our nation’s economic health.”

President Bush said: “In the long run, Americans have good reason to be confident in our economic strength. This country is the best place in the world to invest and do business.”

While Mr Paulson gave few precise details of the bailout plan, it is understood he plans to create a fund, guaranteed by the US Government, into which banks can sell their troublesome mortgage-backed assets at a steep discount.

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