US disappointment fuels share fears
Hopes that the US would embark on a fresh round of fiscal stimulus to boost its ailing economy have been dashed, sparking fresh fears about renewed stock market turmoil.
London's battered shares index dodged its longest losing streak for eight years because of hopes that the US Federal Reserve would announce a third round of money printing, or quantitative easing (QE).
But the hope proved ill-founded when the Fed warned that growth had been slower than expected and said interest rates will remain at a record low for the next two years.
In the wake of the Fed's announcement, stocks on Wall Street fell, which will cause further concern for UK investors who had been boosted after the FTSE 100 Index closed up almost 2%.
The rise meant the London market avoided its eighth consecutive day of falls, which would have been its worst run since January 2003.
The FTSE 100 Index has tumbled some 10% in the past two weeks amid panic that the eurozone will be crushed under the weight of its debts and the US will lead the world back into recession.
Eurozone leaders intervened in bond markets to shore up the finances of debt-ridden Italy and Spain earlier this week.
Traders had pinned their hopes on Fed chairman Ben Bernanke taking action to restore confidence after the US was stripped of its AAA credit rating for the first time. But the Fed said it expects to keep its key interest rate close to zero until mid-2013.
It was downbeat on the prospects for the US economy, saying that so far this year the economy has grown "considerably slower" than expected and it expected "a somewhat slower pace of recovery over coming quarters".
Despite the initial fall in US share prices there was a rally in the last hour of trading with all three main indices higher. The Dow Jones closed up 4%, the S&P 500 4.7% and the Nasdaq 5.3%.