On Wall Street, stocks resumed their rally, with the Dow Jones Industrial Average gaining 416.3 points or 3.78 per cent by the early afternoon. The S&P 500 Index rose 51.63 points or 4.28 per cent and the Nasdaq Composite added 76.31 points or 3.47 per cent. The Dow closed 3.86 per cent higher on Thursday while the S&P 500 rose 4.33 per cent.

European markets also rose strongly, with gains of 5.56 to 9.27 per cent by late afternoon.

In Hong Kong, the Hang Seng Index broke a seven-day losing streak, zooming up 1,695.27 points to close at 19,327.73, for its third-largest one-day point rise in history.

Buyers returned to the market in droves as trading turnover swelled to HK$124.57 billion, a more than 20 per cent increase over Thursday's level.

The H-share index surged 1,340.94 points or 15.53 per cent to 9,974.67 for its second-largest one-day point rise.

In Shanghai, the composite index rose 179.254 points or 9.46 per cent to 2,075.091 as most stocks hit the 10 per cent ceiling.

Investors were celebrating a double-helping of good news from both mainland and overseas markets. After the market close on Thursday, mainland authorities axed stamp duty on buying shares and Xinhua reported that a subsidiary of China Investment Corp would buy stocks in three state-owned banks.

And across the Pacific, the US government initiated meetings on developing a far-reaching bailout fund aimed at relieving the credit pressures on financial institutions.

'If they can successfully launch that fund, then the uncertainty in the financial sector would be cleared out,' said Steven Leung, a director of institutional sales at UOB Kay Hian.

Mainland financials paced yesterday's stunning rebound as investors speculated about the scale of the mainland government's support for the lenders.

'When you don't know exactly the amount there will be lots of speculation and hopes for them to buy a lot,' Mr Leung said. 'So that will provide the momentum for the market to go up a lot more.'

US market regulators also joined their British counterparts in temporarily prohibiting short selling on financial companies to boost investor sentiment.

In the local market, Bank of China led the pack with a 16.67 per cent gain, while Industrial and Commercial Bank of China surged 16.17 per cent and China Construction Bank Corp rose 15.74 per cent.

Mr Leung said the Hang Seng Index could climb as high as 21,000 next week because other sectors had lagged the advance logged by financial plays and also since traders would have to cover short sales made during the market crash earlier in the week.

But despite yesterday's dramatic rebound, Joseph Yam Chi-kwong, the chief executive of the Hong Kong Monetary Authority, reminded investors to keep a cautious view on the global market movement and said the credit crunch would continue for 'some time'.

'There are still lots of uncertainties in the market,' Mr Yam told reporters yesterday. 'I think it is good if you only suffered a 20 to 30 per cent loss in the recent stock meltdown, compared to the average loss of 40 to 50 per cent of most of the investors in the city.'