US shares followed London downwards today, closing down just under 40 points following a tentative rally after global central banks failed to boost confidence by making a surprise half-point interest rate cut.

The Dow Jones industrial average ended down 38.7 points at 9409, paring earlier losses of over 200 points. Over the past six days, leading US stocks have shed around 1,500 points after the US Government failed to stamp out concerns about financial stability despite securing approval for a $700 billion banking bailout plan.

Commenting on the surprise cut, the US Fed said: “The recent intensification of the financial crisis has augmented the downside risks to growth. The pace of economic activity has slowed markedly in recent months.

“Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

Both the US and the UK markets failed to sustain early gains made when the US Federal Reserve and the Bank of England joined four other central lenders to reduce borrowing costs by half a percentage point.

London's FTSE 100 index of blue chip companies fell 238.53 to 4,366.69 at close.

While traders initially welcomed the Bank of England's decision to join other central lenders, including the US Federal Reserve, to cut interest rates, investors had expected the Bank's Monetary Policy Committee to reduce borrowing costs by a half point tomorrow — at its usual monthly meeting.

The London market also failed to be lifted by the Government's historic £500 billion plan to part-privatise UK banks and shore up the UK financial system.

The three-part package includes committing up to £50 billion of taxpayer funds for a partial privatisation of stricken banks, met from increased public borrowing and with political strings attached that would include reining in executive pay.

In addition, the Bank of England will pump at least £200 billion into the money markets under its existing Special Liquidity Scheme. The Government is also making a further £250 billion available for banks over the next three years to guarantee medium-term debt to help restore confidence and get banks lending to each other again.

Barclays, which announced today that it will take part in the Government scheme, saw its shares dive by 8.4 per cent to 261p, after earlier reversing gains on the back of the rate decision.

Standard Chartered, which said it will not participate in the UK scheme, fell by 9.53 per cent to £11.86.

Shares in Royal Bank of Scotland were up less than 1 per cent at 90.70p, after yesterday's shock 39 per cent fall.

The bank's shares have swung wildly throughout the day as it confirmed that it would be taking part in the Government's scheme and speculation grew that its chief executive, Sir Fred Goodwin, and chairman, Sir Tom McKillop, would leave the bank.

The reports suggest that Sir Fred and Sir Tom will be replaced by Stephen Hester, Abbey's former chief operating officer and currently chief executive at British Land, and Sir Philip Hampton, chairman of Sainsbury's who was previously finance director at Lloyds TSB.

A spokeswoman at RBS refused to comment.

HBOS, owner of Halifax and Bank of Scotland, was trading strongly, up 24.47 per cent following the sale of its Australian operation for £1 billion.

At the same time, Lloyds TSB, which is in government-prompted rescue talks with HBOS, said: "Lloyds TSB continues to progress the proposed acquisition of HBOS and is working with HBOS management on all aspects of the transaction."

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