The FTSE has soared by more than six percent on news of the scheme.
A far-reaching new scheme to rescue the US financial system is being discussed and markets are already responding positively.
The Treasury and the Federal Reserve are currently considering a series of options to shore up the markets, which have been very volatile this week. Continuing credit crunch-induced problems in the financial sector, with Lehman Brothers declaring bankruptcy and Merrill Lynch and HBOS forced into takeovers, have led to panic-selling of bank stocks since Monday.
Therefore, the new US plan - which is said to include an £400 billion fund to buy up banks' hard-to-sell assets - is specifically aimed at calming these frayed nerves.
The freezing-up of the money markets - on which financial firms extend loans to each other - is also thought to be targeted by the new scheme. A £200 billion Treasury-backed insurance fund is being mooted for money market investment products: a move which would boost investor confidence and encourage banks to lend more.
Commenting on the discussions Henry Paulson, Treasury secretary, said: "We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets…This country is able to come together and do things quickly when it needs to be done for the good of the American people."
Stock markets soared today around the world, as investors reacted to the new rescue plan. Indications from US and UK financial regulators that they are set to crack down on the practice of short selling - where investors make bets on the value of a certain stock falling - are also thought to have boosted confidence.
Accordingly, all of the major Asian markets have closed significantly up on the day. Tokyo's Nikkei 225 increased by 3.76 percent, while Hong Kong's Hang Seng put on an enormous 9.61 percent.
So far this morning, the FTSE 100 is trading in London at over six percent above yesterday's close, with similar gains registered on the Paris and Frankfurt exchanges. The American markets open for the day this afternoon.
