Wall Street enjoyed a remarkable rally in late trade on Monday, led by financial stocks, as sentiment took hold that a “credit crunch” could be avoided. A dramatic fall in the oil price also fuelled a rally in equities.

By the close in New York, the S&P 500 index had gained 2.4 per cent, up almost 3 per cent from its low for the day. The financial sector gained 4.7 per cent. Rumours swept the market that Fannie Mae, the federal mortgage agency, would be allowed to make sweeping purchases of underpriced mortgage securities. Its shares gained 10.4 per cent, while the smaller Freddie Mac agency gained 7.7 per cent.