Stock market investors were immediately buoyed by the news that Republicans and Democrats had reached an agreement to rescue Wall Street, sending the US markets soaring.

On the New York stock market, shares had already traded 2 per cent higher throughout the morning on anticipation of a deal. Just after the announcement, the Dow Jones Industrial Average was trading up by almost 300 points but retreated to close up 196.89 points at 11022.06.

The Nasdaq Composite was up 30.89 at 2,186.57 or 1.43 per cent. The S&P 500 gained 23.31 points, or 1.97 per cent, to close at 1,209.18.

Investors were hopeful following a stream of upbeat comments from US lawmakers. Senator Dodd said that he believed Congress could act within the next few days to pass the bill. He added: “We are very confident that we can act expeditiously.”

Demand for short-term, safe-haven assets also eased slightly as some investors bet the move would help unclog credit markets.

Presidential candidates, John McCain and Barack Obama are now heading for talks over the bailout at the White House.

Britain’s markets had closed before confirmation of an agreement in Washington. The FTSE 100 had however closed up 101.45 at 5,197.02 on hopes of a deal.

However, stresses in the money markets remained severe. The cost to banks of borrowing from each other in dollar, euros and sterling for three months rose again.

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