With the UK’s Chancellor pumping £20 billion into the UK economy with a VAT rate cut of 2.5% and the US Treasury bailing out Citibank in America with a $20 billion share investment in the troubled bank, world stock markets have soared.

The Uk’s FTSE 100 jupmed by 9.84%, which is the highest jump it has seen in its history, European shares rallied too with the German Dax rising by 10.34% and the French Cac 40 posting a 10.09% gain. The Dow has risen by just under 5% today, but had posted a large gain of over 5% on Friday of last week on the news of the Citibank investment, after European markets had closed.

Losses on stock markets have continued after the collapse of fourth largest US investment bank, Lehman Brothers, which has filed for bankruptcy protection.

European markets opened sharply lower for a second day, with the UK’s FTSE 100 and Germany’s Dax both down 1.7%.

Shares in Japan, South Korea and Hong Kong fell more than 5%, having been shut on Monday for public holidays.

Lehman, which may be about to sell its core assets to Barclays, is the latest victim of the global credit crunch.

Banks hit

The FTSE 100 of leading UK shares fell 91 points to 5,113 in morning trade. The Dax index of leading German shares was down 106 points at 5,959 points and France’s Cac 40 was down 65 points at 4,104 points.

The US stock market on Monday had its worst day’s trading since 9/11, with the Dow Jones index ending the day down 504.48 points, or 4.42%, at 10,917.51.

Japan’s benchmark Nikkei 225 index dropped 5% to a three-year low, shares in South Korea and Hong Kong shed almost 6% in value and Shanghai’s index fell by about 3%.

Chinese share prices closed 4.47% lower as the fallout from Lehman Brothers outweighed Beijing’s first interest rate cut in years, announced on Monday.

The benchmark Shanghai Composite Index, which covers both A and B shares, was down 93.04 points at 1,986.64 after touching a low of 1,974.39.

Markets in Taipei and Singapore were also sharply down, and the pattern was repeated in Australia and New Zealand, although the falls were smaller.

Bank stocks were hard hit again across Europe; in London HBOS was down about 12%, and Royal Bank of Scotland was down more than 7%.

Barclays Bank – which today said it was in talks to take on some of Lehman’s US operations – was one of the big fallers, down more than 5%.

In Paris, Credit Agricole, Societe Generale, and BNP Paribas were all down by nearly 4%, while in Germany Commerzbank dropped 8.6% and Deutsche Bank fell 3.7%.

‘Crisis’

Central banks in Asia attempted to calm markets after similar steps on Monday by their US and European counterparts.

“Big banks can no longer be under any illusion that they can make big, stupid financial bets and expect taxpayers to pick up the bill” Robert Peston, BBC business editor

Q&A: Lehman collapse

The Bank of Japan injected 2.5 trillion yen ($24bn; £13bn) into the banking system. Australia and India also pumped cash into their money markets.

The collapse of Lehman, which had incurred billions of dollars of losses from the failing US mortgage market, threatens to deal further blows to other financial institutions, as they unwind deals with the former investment giant.

“We’re in the middle of a crisis,” said YK Chan at Phillip Asset Management in Hong Kong.

Meanwhile, there were fears AIG, once the world’s largest insurers, could also face collapse.

The State of New York has announced a “multi-billion dollar financing plan” to stabilise the insurer’s finances.

Central banks in Europe and the US have also moved to reassure markets.

The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of $39bn into the financial system.

‘Rough spots’ ahead

US Treasury Secretary Henry Paulson said the US was “working through a difficult period in our financial markets right now as we work off some of the past excesses”.

Henry Paulson was upbeat despite the turmoil

He said Americans could remain confident in the “soundness and resilience” of the US financial system.

But he warned that uncertainty remained and it was likely that there would be further “rough spots” ahead until the correction of the US housing market was completed.

Mr Paulson said he was committed to working with regulators in the US and abroad, as well as policymakers in Congress to take the necessary steps “to maintain the stability and orderliness of our financial markets”.

But he gave no details of what such steps might mean.

On Monday President George W Bush said: “In the long term I am confident that our financial markets are flexible and resilient and can deal with these adjustments.”

News reported by The BBC

London’s index of key shares, the FTSE 100, has closed in “bear market” territory after another tough day for shares in Europe and the US.

The FTSE 100 lost 145 points, or 2.7%, to end at 5,261.6 points. A bear market is often defined as a 20% fall from a stock index’s recent peak.

Friday’s closing price is more than 20% below its June 2007 peak of 6,732.

Markets have struggled amid concerns about the world economy and the impact of slower growth on company earnings.

“The movement this afternoon was a clear indication that we haven’t reached the bottom and the bears are still fully in control,” said Angus Campbell, head of sales at Capital Spreads in London.

Banks hit

High oil prices, which hit a fresh record above $147 a barrel earlier on Friday, have also undermined investor confidence.

In Paris, the Cac 40 share index ended the day down 3.1% at 4,100.64 points, while in Frankfurt the Dax finished 2.4% lower at 6,153.30.

On Wall Street, the blue-chip Dow Jones index ended down 1.14% at 11,100.54 points on heightened fears over the financial health of the nation’s two largest mortgage firms.

Shares in Fannie Mae and Freddie Mac ended down 22% and 3% respectively in volatile trading, with both counters plunging as much as 50% shortly after the open.

In London, banks were among the biggest losers, with Royal Bank of Scotland down 8.5%, Standard Chartered sliding 7.8%, and HBOS shedding 1.8%.

News reported by BBC

Inflation worries, near-record oil prices and fears of further bank losses have led to a sell-off of shares across global stock markets.

Key share indexes in India and China both fell 3% while Japan’s main index fell for its ninth consecutive day for the first time in four years.

In Europe, the FTSE 100 fell 2.6% while the Cac40 fell 2.1% and the Dax 1.6%.

But in New York the Dow Jones Industrial Average bucked the trend, ending the day up 0.28%.

Bank rumours

Swiss bank UBS, which has been one of the biggest victims of the widespread financial crisis caused by the US housing slump, reshuffled its management on Tuesday.

This sparked speculation that the firm, which has announced plans to cut more than 5,000 jobs, could be set to announce further losses from failed mortgage-backed investments.

It has already incurred losses of more than $37bn.

“We haven’t hit the bottom yet… investors are still pessimistic at this point” Zhang Xiuqi, Guotai Junan Securities

“There is more concern coming back in on the banking sector again,” said Andrea Williams, head of European equities at Royal London Asset Management.

“There are a lot of rumours about writedowns.”

Earlier, Asian stock markets were hit by concerns that rising inflation, stoked by higher prices for oil and raw materials, would eat into company profits and slow economic growth.

In India, where inflation is at a 13-year high, the main Sensex index in Bombay slid 3.7% to 12,961.68. Shanghai’s main index. meanwhile, fell 3.1% to 2,651.6, a 16-month low.

“We haven’t hit the bottom yet,” warned Zhang Xiuqi, from Guotai Junan Securities.

“That is because investors are still pessimistic at this point.”

Losses in Japan were limited despite the closely-watched Tankan survey of corporate prospects showing that business confidence had fallen to a five-year low.

News reported by BBC