The FSA’s temporary ban on short selling sent the FTSE 100 8.84 per cent higher, with Royal Bank of Scotland, HBOS and Barclays the big winners.

The blue-chip index ended the week at 5,311.30 following the announcement from the Financial Service Authority (FSA) last night that shorting financial stocks will be banned for the next 120 days.

At its highest point, it rose over nine per cent to 5,351.20 – the biggest gain in over 20 years.

A similar decision in the US, along with the news the government is prepared to bail out the entire banking sector, also spread cheer among investors and has sent the Dow Jones industrial average significantly higher.

Ryan Kneale, market analyst at City bookmaker BetsForTraders.com, said: “A combination of the regulators temporarily stopping short selling and rumours of a US crisis plan, has put a rocket under stocks and they appear to be heading for the moon.

“Whilst this is good news for share prices and should be welcomed, everyone is still glancing over their shoulders as an air of cautiousness remains.”

Royal Bank of Scotland shares closed 31.95 per cent up at 213.50p, having reached highs of 252.50p earlier in the day.

Barclays finished 29.24 per cent higher, at 389p, while shares in HBOS closed 28.91 per cent up, at a respectable 222.5p per share.

Insurers were also higher, with Legal & General up 26.70 per cent to 110.10p and Prudential up 23.46 per cent to 600p.

Very few stocks were in the red by the end of a tumultuous week, with shares in ITV down the most at 3.23 per cent, alongside British American Tobacco, Unilever, Morrisons, and Capita Group.