Britain's top share index rose today, outperforming other European markets, as the British government's pledge to guarantee all deposits held by Northern Rock spurred a rebound in battered financial stocks.
By 8.35am, the FTSE 100 was up 0.7 per cent at 6,223.7 recovering from a 1.7 per cent fall in the previous session. French and German markets were flat to slightly lower.
The comments from government officials helped financial stocks to recover ground, with Alliance & Leicester jumping 26 per cent, Northern Rock surging 11 per cent and HBOS rallying 4.1 per cent.
"It is not often that we see bank-runs in the industrialised world and clearly we are seeing one now. It's not pretty for share prices," said Peter Dixon, UK economist at Commerzbank.
"I think it's going to help give markets some respite in the course of the day."
Shares in Northern Rock have plunged about 65 per cent in the last two sessions as thousands of customers queued to withdraw their savings, exacerbating troubles at the bank whose main source of funding was severed by a global credit squeeze.
Markets are now focused on interest rates.
The US Federal Reserve is widely expected to cut rates by at least 25 basis points later on Tuesday to keep the credit crunch, which has caused havoc in financial markets, from pulling the world's largest economy into a recession.
Among gainers, Barclays surged 3.3 per cent, Royal Bank of Scotland gained 2.3 per cent and HSBC put on 0.4 per cent.
Oil stocks also rose as US crude prices rallied to a record high above $81 a barrel on concerns of a winter supply squeeze in the world's top consumer.