The $700bn bet that failed | The World is heading for a recession | Leader: a dangerous moment | Feds join global effort | The bailout will happen | Depositors flee Glitnir | Sarkozy summons French bankers | Citigroup buy Wachovia | Mitsubishi shore up Morgan Stanley | Third sale of assets for Lehman | Asia markets drop | Obama's warning to Congress | The 10 biggest stock market crashes ever

Global stock markets spun in chaos today, following last night's dramatic decision by the US Congress to reject the biggest rescue of Wall Street since the Great Depression.

Shares in London plunged by as much as 145 points in early trading, with banks and miners leading the FTSE 100 index of blue chip stocks down by nearly 3 per cent.

By midday, the cost of borrowing dollars between banks surged to an all-time high of 6.88 per cent, despite yesterday's move by the US Federal Reserve to double the size of its currency swap arrangements with global lenders, including the Bank of England, to $620 billion.

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Not for the first time, the US Congress has taken a fateful step towards driving the world over the cliff

Gerard Baker

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However, the prospect of a rollercoaster ride on Wall Street later today, sparked by hopes that the Republicans and Democrats will reach a compromise on the $700 billion bailout plan, halted today’s fall in London shares.

Within an hour of opening, the FTSE 100 rose by 14.3 points to 4,833.14, compared with yesterday’s 269.7-point decline, after US stocks rallied in pre-market trading

Yesterday, the Dow Jones industrial average fell by 7 per cent, marking the worst one-day point fall since Black Monday in 1987. But, this morning, pre-market trade sent the Dow Jones up 150 points.

It is hoped that US lawmakers can push through a new plan to rescue the US financial system by next week and talks are expected to resume by Thursday, following a break for Jewish New Year.

Across Asia, investors were panicked by last night’s decision in America, with Japan’s benchmark Nikkei 225 index falling by 4.1 per cent to a three year-low.

However, in Hong Kong and Australia, like London, sharp declines were tempered by the prospect of a new deal.

Hong Kong's Hang Seng index fell 2.4 per cent after earlier plunging more than 5 per cent, while in Australia, the S&P/ASX-200 index closed down 2.4 per cent after falling as much as 5.3 per cent.

In contrast, Russia suspended trading again following orders by Russian regulators, according to officials at the MICEX and RTS bourses.

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