The comfort level for London's equity market was taken up a notch yesterday after the shock news overnight that the US Federal Reserve had cut its Fed funds rate and its discount rate by 25 basis points.

That news came out of the blue and saw Wall Street embark on a buying spree which took the Dow Jones Industrial Average up more than 330 points, or 4 per cent. It was followed by substantial gains across Asian and European markets.

Wall Street continued its good work at the outset yesterday, with the Dow up in excess of 100 points not long after the opening bell in New York.

For London, the Fed's move to reduce rates for the second time in three weeks, and for the first time outside of an open markets committee meeting since 1994, was taken as a clear signal that another downwards shift in British interest rates was on the cards.

The only lingering worry for the market was that the Fed's move could have been taken from a position of weakness rather than strength.

One dealer said: "There is a real worry that the Fed cut because it knows something we don't. The market remains very tense about the possibility of more hedge funds teetering on the brink; if another one goes, we could be back where we started". When the dust settled on a day of higher than usual activity in equities, the FTSE 100 was left with a 76.8 gain at 5,133.1, well below its best of the day when the index pushed through 5,200.

That closing gain took the rise in the London market's benchmark index over the week up to 309.7, or 6.4 per cent.

What impressed dealers and investors even more than the strength in the leaders was the buying power behind the market's smaller stocks.

The FTSE SmallCap index, which has underperformed the FTSE 100 and 250 indices over the past month, quarter and 12 months, shot up 43.1, or 2.3 per cent, to 1,911.3, while the FTSE 250 jumped an impressive 94.2, or 2.1 per cent, to 4,563.9.

Turnover in equities hit 1.15 billion.