Markets bounce back

European markets today staged a modest recovery in early trading as investors moved to pick up bargains, boosted by overnight gains on Wall Street.

The FTSE-100 rose 46.6 points, or 1.4%, to 3,333.6 after suffering one of its worst losses yesterday. The bounce in UK shares came as Treasury officials sought to stiffen investors' spines.

Ruth Kelly, financial secretary to the Treasury, argued that Britain's economy remained fundamentally sound

"Clearly I don't want to be complacent. This is a real problem for individual investors, people with mortgages and pensions and so on who see the value of those funds fall," Ruth Kelly, told BBC Radio 4's Today programme.

"But over the longer term, equity markets do tend to reflect the economic fundamentals and we have extremely good fundamentals in this country."

Her remarks followed similar statements she made yesterday to the national association of pension funds as officials tried to calm the markets on a day when leading UK shares suffered one of their worst ever beatings.

With war imminent despite the lack of an international consensus on Iraq, the FTSE yesterday sank 166 points, or 5%, to 3,287, a level not seen in seven and a half years. Some £40bn was wiped off leading British companies.

The Treasury and the financial watchdog, the financial services authority (FSA), were monitoring the situation, Ms Kelly said today.

"It is up to the FSA to work very closely with particular companies to make sure they know exactly what's going on and try to protect them," she said.

The FSA has already relaxed rules that could have forced insurance firms to sell shares into a falling market, accelerating the downward price spiral. Today, some confidence returned to the markets, although traders remained nervous.

A late rally on Wall Street that saw the Dow close 28 points higher helped to lift the gloom, and investors moved into the markets looking for bargains. The FTSE has already lost about a fifth of its value this year.

In the morning bounce, financial stocks, such as Friends Provident and Royal & SunAlliance, made up half the index's value and oil stocks added a further 16 points. Shares in continental Europe also made headway, with Paris and Frankfurt up 1.9% and 2.1% respectively.