Another £33bn (€42bn) was added to the value of UK blue chips today as London’s leading share index extended yesterday’s relief rally.
But investor profit-taking saw early session gains pared back, to leave the FTSE 100 Index up 3.2%, to close 137.3 points higher at 4394.2.
The FTSE had soared by as much as 6.5% at one stage, coming after a more than 8% surge seen the previous session following the UK’s £37 billion banking bail-out and similar global action to end the stock market turmoil.
The Dow Jones Industrial Average also gave back some of its 400-point opening surge as investors looked to take profits after the record-breaking rise.
The US index later stood a more muted 1% higher, although investor spirits remained upbeat after President George Bush unveiled plans to follow the UK’s lead and buy shares in the nation’s leading banks, at a cost of $250bn (€183bn).
Bush said it was “an essential short-term measure” to get loans moving again.
Other markets across Europe posted further gains today, including Germany’s Dax and the CAC 40 in France, both of which rose by 2.7%.
In London, high street bank Barclays was the top-performing blue chip company, with a rise of 14%.
Anthony Grech, market strategist at IG Index, said that while the market had enjoyed another positive day’s trading, the high volatility suggested further falls could be on the horizon.
“Traders were always a bit twitchy that the strength seen so far could be just a flash in the pan and at the moment they still seem as willing as ever to head for the exits on the first sign of weakness,” he said.
Banks again saw a mixed session, with Royal Bank of Scotland, whose shares have been the biggest casualty of the recent turmoil, down 1% after an earlier rise of 7%. This is below the 65.5p price of the £15 billion in new shares it will offer existing shareholders under its capital-raising plans.
Merger partners HBOS and Lloyds TSB also remained on the back foot, down 7% and 5% respectively as investors mulled over the prospects for the firms’ marriage.
Trading had got off to a good start in London today after some mammoth overnight rises in Asia and New York.
Japan’s Nikkei 225 soared 14%, its biggest one-day rise, while New York’s Dow Jones Industrial Average soared 11%, the index’s biggest daily jump since the Great Depression.
The mood was also buoyed after the latest bank rescue plans were unveiled in the US, which came after European governments said they are allocating more than a trillion euro to protect the region’s banks through guarantees and other emergency measures.
Richard Hunter, head of equities at broker Hargreaves Lansdown, said markets were now looking at where stocks would head next.
“After the relief rally, all eyes are going to be on the medium-term outlook and the fact that most people think that 2009 is going to be very difficult indeed,” he said.
“The third quarter earnings season is also coming up in the United States.”
Justin Urquhart Stewart, a director of Seven Investment Management, added that amateur investors should be warned to expect further volatility.
“Please be careful,” he said. “These are erratic and dangerous times. Inflation is high, the global economy is slowing and the banking crisis is still around.
“If you make a profit on short-term investments, then bank it.”