Shares surge on Europe aid plan

The rally was sparked by the announcement from the US Federal Reserve that it would expand a program allowing foreign banks to borrow US dollars at a low interest rate.

At the same time, China's central bank moved to relax requirements on cash reserves to encourage new lending.

The US central bank, in a joint statement with the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank, said the decision to free up capital was aimed at providing much-needed US dollars.

Over the past year it has become increasingly difficult for foreign banks to borrow in US dollars, still the primary currency for global transactions.

"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," read the statement.

World markets reacted swiftly, with stock in Germany jumping almost 5 per cent and the key index of US stocks, the Standard & Poor's 500, climbing more than 4 per cent.

Australian shares joined the global rally, with the S&P/ASX 200 index closing almost 2? per cent higher. Led by BHP Billiton and the big four banks, the key index finished up 108.8 points at 4228.6.

But despite four days of gains on global sharemarkets, concerns about the ability of European leaders to resolve the debt crisis remain.

"The European sovereign debt problem will not be solved only with liquidity," said the governor of Japan's central bank, Masaaki Shirakawa.

Olli Rehn, European commissioner for economic and monetary affairs, said negotiations in Europe remained "critical".