UK-listed financial stocks may have rallied on Tuesday, but the aftershocks from the collapse of Bear Stearns were still being felt in the City of London.

Shares in UK banks led the FTSE 100 higher, rising between about 4 per cent and 8 per cent, and reversing much of Monday’s falls. The rally, ahead of an expected cut in US interest rates, reflected an easing of concerns that banks faced further substantial mark-downs on their securities portfolios following policy action in the US aimed at slowing the massive unwinding of leveraged investment positions across the financial system.