Shares rocketed by 10 per cent in New York during the second biggest rally in Wall Street history. The gains were fuelled by hopes of a large cut in interest rates on Wednesday and rumours that Washington plans to expand its bank bailout scheme.

Within the last 30 minutes of trading on Wall Street, the Dow Jones Industrial Average soared 889 points to 9,065 as traders banked on the US Federal Reserve slashing interest rates by at least a half percentage point to 1 per cent. It was the Dow's second-largest point gain, coming after the 936 points jump on October 13.

At the same time, rumours swept across Wall Street that the US Treasury is considering ways of allowing non-listed banks to take part in America's $700 billion rescue plan. Such a move would make thousands of other troubled financial institutions eligible for emergency federal funds.

Traders were also hopeful that a big rate cut in the US will be matched by the Bank of England and the European Central Bank who both gather next week for scheduled meetings. The rally on Wall Street was also spurred by reports from Tokyo that the Japanese central bank will also reduce the cost of borrowing.

In Washington, the US central bank began its two day meeting during which economists believe it will discuss cutting rates by three quarters of a percentage point to 0.75 per cent - the lowest level since 1958. Economists have also speculated that the Fed will consider the feasibility of reducing the cost of borrowing by the year-end to zero, a measure long adopted by Japan.

Dealers had already been cheered by sharp rallies overnight in the Far East, Europe and in London with Hong Kong's Hang Seng up 14 per cent, Tokyo's Nikkei rising 6 per cent, Frankfurt's Dax climbing 11 per cent and finally, the FTSE 100 in London managing to close up 73 points, or around 2 per cent.

But throughout the course of the New York trading session, dealers were enticed back into the market with the promise of cheaper money and new hopes that Washington is set to approve a merger between General Motors and Chrylser, the stricken car manufacturers.

Shares in General Motors jumped 6 per cent. Elsewhere, Boeing shares shot up 15 per cent as it emerged that a damaging strike had been averted.

But companies as diverse as AT&T, the telecoms giant, Home Depot, the DIY chain, and Exxon Mobil, the oil group, all posted double digit percentage gains as buyers began to return to the market.

The S&P 500 Index surged 91.58 points, or 10.79 per cent, to close at 940.50. The Nasdaq jumped 143.57 points, or 9.53 per cent, to close at 1,649.47.

Overall optimism that the global co-ordinated attempts to cut interest rates, bail-out banks, ban short-selling, and pump billions of dollars of liquidity into world markets, may have stemmed the threat of new severe stock market losses, helped lift the Dow.

The price of US Treasury bonds fell as investors were tempted away from so-called safe haven securities back into equities. The yield on the 10-year Treasury benchmark - which moves in the opposite direction from price - jumped to 3.76 per cent, up from 3.68 per cent on Monday.

Ben Bernanke, the chairman of the Federal Reserve, is on Wednesday expected to announce that America's central bank will cut the cost of borrowing again by 0.5 per cent to 1 per cent, the lowest level since June 2004. Such a reduction would mark the second of its size in the US this month alone. The US central bank has already slashed interest rates from 5.25 per cent just over a year ago to try and soften the landing of the looming US recession.

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