A vow from President Bush to get the package through Congress despite Monday night's shock rejection saw investors keep their fingers crossed that a new version of the deal can be hammered out before the end of the week.

The FTSE 100 Index closed up 83.68 points to 4902.45 by the close, a rise of 1.7 per cent.

It was a wildly different picture from the hefty falls predicted yesterday, and clawed back some of Monday's 5 per cent slump.

Afternoon trading was boosted by a good start on Wall Street, with the Dow Jones Industrial Average rising nearly 3 per cent following Monday's record 7 per cent plunge.

It was a mixed session for London's banks with Halifax Bank of Scotland off 14 per cent, or 195/8p, to 1223/8p amid speculation that its takeover by Lloyds TSB may need to be repriced. Lloyds TSB shares were 91/4p higher at 2261/2p.

Royal Bank of Scotland was 1 per cent lower, down 2p to 179p, despite telling investors that the acquisition of ABN Amro assets would not be affected by the forced sale of a stake by bid partner Fortis. Barclays also lost 2 per cent, or 73/4p, to 3261/2p.

HSBC, seen as a steadier bet in the current turmoil, rose 36p to 901p. The major corporate news of the session came from Tesco, which rose nearly 5 per cent, or 173/4p to 3875/8p, after it reported a 10 per cent rise in half-year profits and said it was making inroads in the battle against discount rivals.

Other retailers also enjoyed a good session, with Morrisons up 111/4p to 2581/2p. B&Q owner Kingfisher also added 33/8p
to stand at 1313/4p.

But Marks & Spencer moved in the opposite direction, ending the day down 63/4p to 2011/2p. The group issues a trading update tomorrow.

Shares in broadcaster ITV also edged up a penny to 42p after the firm announced more than 400 job cuts as part of a cost-cutting exercise.

Pubs chain Enterprise Inns advanced by 211/4p to stand at 1781/2p – up 14 per cent – after it described trading as robust and said that it remained on track to meet profit expectations.

This was welcomed by other pub chains, causing Punch Taverns to recoup Monday's losses with a gain of 141/2p to 135p and Mitchells & Butlers to lift by 131/4p to 2191/4p.

On the downside, oil firms were among the losers as oil remained pegged below 100 US dollars a barrel.

BP was off 3p to 464p, and Cairn Energy a penny lower at 2072p. Fuel-hungry British Airways fell 11/4p to 1681/4p despite the lower oil price.

The Footsie's four biggest risers were ICAP, up 653/4p to 355p, Thomas Cook advanced 183/4p to 2211/2p, London Stock Exchange lifted 72p to 863p and Old Mutual which closed 61/4p higher at 77p.

The four biggest fallers were HBoS, Marks & Spencer, Barclays and Stagecoach Group, off 41/2p to 2511/4p.