Global stock markets staged a historic rally yesterday as European governments pledged a total of €1,873bn ($2,546bn) to shore up their financial sector and the US prepared to unveil its own comprehensive rescue plan today.

In New York, the S&P 500, which last week fell 18.2 per cent, rose 11.6 per cent - the biggest daily gain since the volatile trading of the Great Depression.

The US was expected to announce that it would commit $250bn, out of the $700bn rescue package agreed earlier this month, to a recapitalisation programme, provide a temporary sovereign guarantee for bank borrowing and expand depositor protection.

About half the money would be invested in bigger US banks including Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley - with the largest lenders receiving as much as $25bn. The rest of the $250bn would go to as yet unspecified smaller financial institutions.

Bankers said the Treasury offered to purchase a specific amount of three-year preferred stock in each bank on a take-it-or-leave-it basis.

The Treasury summoned top bankers including JPMorgan's Jamie Dimon, Morgan Stanley's John Mack and Goldman's Lloyd Blankfein to brief them on the plan. The heads of the country's largest banks were last night trying to decide whether to participate in the programme.

Earlier, Germany unveiled a far-reaching plan closely modelled on last week's British initiative. It will issue up to €400bn in credit guarantees for inter-bank lending and set aside a €100bn fund to inject capital in financial institutions and acquire illiquid assets. France meanwhile said it would guarantee up to €320bn in inter-bank loans and provide €40bn in new capital for banks. Christine Lagarde, French finance minister, said French banks should use the funds to raise their tier one capital ratios to 9 per cent, so that they are on "a level playing field" with British banks.

The Netherlands, Spain, Italy, Austria, Portugal and Norway joined the effort, committing a total of €501bn in guarantees and capital, while the British government said it would provide £37bn ($64bn) in new capital to three of the country's largest banks - as part of its already announced £400bn bail-out plan.

The US Federal Reserve announced it was making unlimited amounts of dollar funds available offshore to be distributed by the European Central Bank, Bank of England and the Swiss National Bank.

People familiar with the Treasury plan said it had dropped its opposition to sovereign guarantees for funding as these guarantees spread across Europe, putting US banks at a competitive disadvantage.

Under the US plan, these guarantees are likely to be provided by the Federal Deposit Insurance Corporation. The US shift on sovereign guarantees makes it very likely that Canada, and possibly Japan, will follow suit.

The Dax index of the Frankfurt stock exchange closed up 11.4 per cent while the CAC40 in Paris rose 11.2 per cent. London's FTSE 100 rose 8.3 per cent, its second largest one-day gain in history, and Hong Kong's Hang Seng index rose 10.24 per cent.

Signs of relief emerged in the frozen credit markets at the centre of the financial crisis, as three-month dollar Libor eased to 4.75 per cent from 4.82 per cent, the first time it has fallen since last Monday.

The plans were welcomed by the International Monetary Fund. "The peak of the crisis is perhaps behind us," said Dominique Strauss-Kahn, its managing director.

Additional reporting by James Wilson in Frankfurt