Stock markets were given a boost on Tuesdayvafter the US Federal Reserve cut rates by 0.75%, but the move was less than many had hoped for in the mounting economic gloom.

Markets had widely speculated that the Fed was preparing to deliver a 1% cut as the world’s biggest economy struggled amid signs of a sharp downturn in the US and a deepening credit crunch crisis.

The FTSE 100 index in London closed 3.5% up - soaring 191.4 points to 5605.8 - in anticipation of a dramatic rates move.

Shares on Wall Street’s Dow Jones Industrial Average eased back after the rates decision, having rocketed more than 300 points at one stage, later standing around 200 points ahead.

Traders raised concerns that a cut of less than 1% could see the Footsie in London come under pressure again tomorrow as volatility remains high after the shock news of the rescue and cut-price sale of US bank Bear Stearns.

But economist James Knightley of ING Bank said the Fed had "more work to do" and was likely to trim rates again.

"Liquidity conditions and market sentiment will need to improve significantly to prevent the Fed having to come in and cut the Fed funds rate further," he said.

"Default risk and counterparty concerns will linger on and with further write-downs still probable, access to credit will continue to be constrained. This presents an ongoing risk to the economic outlook and so we expect the Fed to push the Fed funds target rate down to 1% in the coming months."

The gains made on the FTSE 100 saw the top flight index recover the bulk of the losses seen on Monday when it fell by almost 4%, slumping to its lowest level for more than two years.

Global markets shaken by the sale of troubled US investment bank Bear Stearns also took comfort in better than expected results from fellow financial firms Lehman Brothers and Goldman Sachs.

Both companies posted first-quarter profits lower than last year, although their shares rose as results failed to fulfil the worst fears of analysts.

The interest rate cut from the Fed marks its second move in three days to ease financial and economic turmoil after a rare Sunday intervention saw it lower the rate at which it lends to banks by 0.25% to 3.25%.

The Bank of England also made a bid on Monday to calm jittery markets, pumping an extra £5 billion into frozen money markets.

But the cash injection was not enough to stop more than £51 billion being wiped off the value of the UK’s biggest companies. Banks were the worst hit, but were back on the front foot amid the US rates optimism.

Alliance & Leicester and HSBC were posting gains of more than 7%, while investment firm Man Group was 9% better. Barclays and Halifax Bank of Scotland - the two to suffer the most on Monday- rallied 5% and 4% respectively.

The market volatility comes after investment bank Bear Stearns became the biggest victim of the credit crunch yet when forced to seek emergency funding last Friday. It was eventually bought by rival JP Morgan Chase for a cut-price £236.2 million US dollars (£116.4 million).

Bear Stearns was heavily exposed to the mortgage-backed investments hit by the credit crunch and last week rumours of problems at the business swept the market, leading to a cash crisis at the firm.

Billionaire British businessman Joe Lewis, whose Tavistock Group firm owns Tottenham Hotspur as well as other worldwide investments, said he has lost more than one billion US dollars (£500 million) after the cut-price buyout of the bank.

Chancellor Alistair Darling updated Cabinet colleagues on the economic turmoil at their regular weekly meeting.

Prime Minister Gordon Brown’s spokesman said: "The Chancellor updated the Cabinet on his discussions and over the weekend with the US Treasury Secretary, the governor of the Bank of England and the chairman of the Financial Services Authority.

"He explained we were working with authorities here and internationally and doing all we can to maintain stability and growth in the face of continued global turbulence.

"He said that, because of the resilience of the UK economy, our low debt, unemployment and inflation, we were well-placed to deal with the current global financial turbulence and the fundamentals of the UK economy remain strong."