A sweeping rescue of the US banking system failed to calm the public finance markets, where funding costs for municipalities rose to an eight-year high.

Despite the market turmoil, the state of California went ahead with plans to raise $4bn (€2.94bn, £2.3bn) to plug a seasonal cash shortfall as it awaits tax receipts due next spring, offering the higher interest rates necessary to attract buyers. The state had warned that it might need federal aid if the debt sale failed.