The FTSE 100 finished the day more than 8 per cent higher on hopes of an interest rate cut in the US.

The index ended 316.2 points up at 4242.5, the third biggest rise in the benchmark's history, which added around £76 billion to the value of battered UK blue chips.

Traders were anticipating the later announcement of a 0.5 per cent cut in rates by the US Federal Reserve.

The Bank of England is also expected to cut rates by at least 0.5 per cent at its own meeting next week, following the emergency rate-slashing move by central banks earlier in October.

The London rally was focused on those sectors which have borne the brunt of the market's previous falls.

Norwich Union parent Aviva rose 25 per cent or 65p to 324p as investors also drew on a comforting trading update from the life and pensions giant earlier in the week. Sector counterpart Prudential also benefited from the wider rally, ahead 19 per cent, or 47p at 295.25p.

Standard Chartered bank has been hit by worries over the state of emerging markets, but shares recovered 210p to 910p, a rise of 30 per cent. Sentiment also improved towards HBOS, which cheered 19.4p to 88p, and Royal Bank of Scotland, up 7.2p to 64p.

Hopes of a half-point interest rate cut in the UK next week boosted prospects for a number of retailers. Next rose 111p to 1011p, while in the FTSE 250 Index, Debenhams soared 22 per cent, or 5.75p to 31.75p and Comet owner Kesa Electrical improved 9.25p to 69.25p.

Energy and commodity firms were also higher after oil prices gained on expectations that rate cuts will prop up economic output. BP, which rose sharply in the wake of third quarter results on Tuesday, added another 10 per cent or 44.25p to 505.75p.

Royal Dutch Shell gained 180p to 1670p ahead of its own quarterly figures on Thursday.

There were only a handful of stocks on the fallers board, including Friends Provident as the stock gave back a slice of the strong gains seen at the end of the previous session. Friends was down 8 per cent or 5p at 60p.

Transport group Stagecoach was among others under pressure, down 13.3p to 192.2p, despite reassuring that trading was in line with expectations. It reported like-for-like revenues growth of 9.2 per cent for the UK bus arm, with growth in South West Trains also holding up well.

Tesco struggled to make headway for a while after an analyst at Shore Capital reported that UK's biggest retailer was internally budgeting for like-for-like sales growth of 2 per cent in the UK - compared to its usual guidance of 3 per cent to 4 per cent. Shares were later 13.7p higher at 332.3p.

In the second tier, Swiss miner Ferrexpo was bucking today's wider sector rises with a 25 per cent plunge, down 13.5p to 39.5p, after it warned that weak steel demand will cause full-year sales to be lower than expected and announced its boss was quitting.

The FTSE winners were Old Mutual ahead 11.8p at 50.8p, Standard Chartered up 210p at 910p, HBOS up 19.4p at 88p and Admiral Group up 221.5p at 1090p.

The losers were Friends Provident down 5p at 60p, Stagecoach Group off 13.3p at 192.2p, Liberty International down 12p at 620.5p and FirstGroup down 2p at 417.25p.

© Independent Television News Limited 2009. All rights reserved.