Shares in London and New York shot sharply higher yesterday amid signs that the international banking bail-out is slowly rekindling the wholesale lending markets.

The FTSE 100 index of benchmark shares jumped by 5.4pc after the London Interbank Offered Rate (Libor) for dollars dropped at its fastest rate for nine months.

In the US, the Dow Jones also rallied to close up 4.7pc amid growing confidence of credit market improvements.

Although experts cautioned that the markets, in which banks lend to each other unsecured, remain “moribund”, the fall in the declared interest rates has sparked a glimmer of hope that the bailouts may represent the beginning of the end for the crisis.

Daily Telegraph