Almost £90bn was added to the value of leading shares on Monday as investors breathed a huge sigh of relief that Citigroup had been rescued by the US government.

The FTSE 100 enjoyed its biggest ever daily percentage gain and its second best points gain in its 24-year history, surging 372 points, or 9.8 per cent, to 4,153. That eclipsed the 8.4 per cent rise on the day in September when the Financial Services Authority banned short selling of financials.

The FTSE 250 climbed 298 points, or 5.4 per cent, to 5,789.5.

Traders said the plan to pump $20bn into Citi and, crucially, guarantee up to $306bn in problematic assets had helped inject some much needed confidence into the market. The chancellor’s pre-Budget report did nothing to affect the positive mood in the City.

The record-breaking gain helped the FTSE 100 recoup a large chunk of last week’s 11 per cent fall, which was the third biggest on record.

However, trading volumes were below average, suggesting that Monday’s gains owed more to short covering and computerised trading strategies that follow trends or momentum.

“The reality is that we are in a bottoming process in the equity market, and this, as well as the broader economic deleveraging, will drive volatility,” said Michael O’Sullivan of Credit Suisse private banking.

The mining sector spearheaded the bounce. As risk appetite returned, Kazahkmys climbed 27.8 per cent to 229¾p, while Eurasian Natural Resources added 27.4 per cent to 257p. BHP Billiton gained 22.9 per cent to 980p and Anglo American put on 22.8 per cent to £13.90.

Insurance stocks, which were hit hard in last week’s market rout, were also in demand. Prudential rose 20.4 per cent to 295p, while Aviva added 9 per cent to 321p. A push from Nomura provided further support.

“We rate both Prudential and Aviva ‘buy’ as we believe the market is too pessimistic about the probability of the companies needing to raise capital,” analyst Matt Lilley said.

Banks also had a good day because of the Citi bail out. Barclays climbed 10 per cent to 146½p as shareholders approved its controversial £7bn fund raising, while Royal Bank of Scotland added 7.2 per cent to 50.8p helped by positive comments from Fox-Pitt Kelton. “We believe the UK banking sector can get through the recessions without further re-capitalisations,” said analyst Leigh Goodwin.

Lloyds TSB rose 18.4 per cent to 147.6p, while HBOS moved 17.3 per cent higher to 86p. However, emerging markets bank Standard Chartered missed out. It was one of the two blue chips that closed lower – the other was the non-voting shares of fund management group Schroders, down 0.1 per cent at 540p.

Standard Chartered fell 4.5 per cent to 725p after it announced plans to raise £1.8bn in a deeply discounted rights issue. The move surprised the market because last week, Standard was reassuring investors about the strength of its capital base.

Retailers were in demand after the chancellor confirmed plans to cut value-added tax from 17.5 per cent to 15 per cent. Marks and Spencer gained 6.9 per cent to 218¼p even though rumours circulated that the company might have another one-day sale. According to the rumour mill, December 4 and 11 have been pencilled in.

Kesa Electricals, up 12.9 per cent to 72¼p, and DSG International, 5.8 per cent better at 13¾p, also enjoyed gains.

Traders said there was the possibility of a short squeeze in DSG. This is because 60 per cent of the stock available to borrow is now out on loan.

Among the mid-caps, Homeserve, which sells insurance policies for home appliances and emergency repair services, dropped 29 per cent to 867p after the company warned that profits could be hit if the slowdown continued.

UK Coal, the biggest coal mining company in the country, rose 11.2 per cent to 59½p after the chairman, chief executive and finance director, all declared the purchase of 68,500 shares.

There was also director sharebuying at IG Group, the financial spread betting company. Chairman Jonathan Davie said he had picked up 90,000 shares at 183p. Shares rose 11.1 per cent to 203p.