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Stock markets have rallied on a co-ordinated effort by central banks to inject billions of dollars into the financial markets.

The Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan, the Bank of Canada and the Swiss National Bank are all making an effort to ease the pressures in short-term funding markets by offering to lend money against collateral.

The Bank of England is offering $40 billion (£22 billion) to improve liquidity, while the European Central Bank is offering $55 billion and the Federal Reserve $180 billion.

The Dow Jones industrial index opened slightly higher today at 10,609.01, after a four per cent fall yesterday to close at 10,609.66. By 10:00 EST in New York, the index had climbed further to 10,824.37.

The UK FTSE 100 briefly headed above the 5,000 mark this afternoon, before falling back down again.

In a statement, the banks said: "The central banks will continue to work together closely and will take appropriate steps to address the ongoing pressures."

The action is designed to help keep credit available amid dramatic falls in confidence among investors.

The measures follow days of turmoil around the world after the collapse of Lehman Brothers and the rescue of insurer AIG by the US government, then the sale of HBOS to Lloyds TSB.