THE London market surged 1.7% ahead today as stocks rallied on news that US policymakers cut interest rates by three-quarters of a percentage point.

The US Federal Reserve slashed the cost of borrowing as fears of a recession mounted, sending stocks soaring on the FTSE 100 Index.

The Footsie rose by more than 100 points at one stage after the news, recovering after an abysmal start that had seen the index plummet by 4.3% in the first few minutes of trading.

The Fed's move to trim benchmark rates - to 3.5% - sparked an initial wave of relief, coming after yesterday's global sell-off on concerns over the world's biggest economy.

US rate-setters had not been expected to reduce borrowing costs until the end of the month, but said today's surprise decision came amid gathering economic gloom.

Risks to growth

The Fed said: "The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.

"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.

"Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labour markets."

The Fed also cut the discount rate - the interest that banks charge each other on overnight loans - by three-quarters of a point, to 4%.

But investors appeared wary that the cut - the biggest one-day move by the central bank in recent memory - may not be enough to head off a recession in America.

Stocks in London soon pared back gains, dropping into negative territory again, with the Fed's comments signalling the extent of the economic woes faced in the US.

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