Share prices in London have shot up by almost 4% following the nationalisation of mortgage giants Fannie Mae and Freddie Mac by the US Government.

The move helped calm market fears over the fate of the lenders, which own or guarantee more than five trillion US dollars (£2,800bn) worth of mortgages between them.

The pair have lost more than $14 billion (£8bn) in the last year due to the downturn in the US housing market but their collapse would cause global turmoil as their bonds are held by major investors worldwide.

The news sent Asian stock markets soaring overnight, with Japan's benchmark Nikkei 225 up 3.4% and Hong Kong's Hang Seng showing gains of almost 4%. In London, the FTSE 100 Index opened 3.7% higher.

CMC Markets dealer Matt Buckland said: "The move should take a lot of uncertainty out of the market in one quick move and at the same time stands to offer US consumers a helping hand too."

The rescue sent a raft of the UK's biggest banking stocks surging to double-digit gains as the move to prop up the pair offered hopes that a further slump in the US housing market might be prevented.

Barclays gained 15%, Halifax Bank of Scotland and Royal Bank of Scotland both leapt 14%, while Lloyds TSB added more than 10%.

Major banks have written off billions in their exposure to the struggling US housing market through complex investments since the credit crunch began last year.

Meanwhile, other firms directly exposed to the US housing market such as heating and plumbing giant Wolseley rose 14%, while, in the FTSE 250, US-exposed housebuilder Taylor Wimpey added 12%.

The dramatic revival comes after the Footsie recorded its worst week of losses in more than six years last week.

But the prospect of Government-backed loans could help stimulate the US housing market and ease the crisis which has gripped financial markets since August last year.

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