The Bank of England has vowed to help stabilise financial markets, joining other central banks in promising action to ease the economic impact of the coronavirus.
London’s FTSE 100 index soared almost 3% in early trading, before falling back into negative territory.
It followed a rebound in Asian markets amid hopes central banks will cut interest rates and provide stimulus.
On Monday, Japan’s central bank said it was prepared to intervene.
This mirrored a similar pledge from the US Federal Reserve on Friday to stop more big falls on global stock markets.
And the Bank of England said it continued to monitor developments and is assessing its potential impacts on the global and UK economies and financial systems.
“The Bank is working closely with HM Treasury and the FCA (Financial Conduct Authority) – as well as our international partners – to ensure all necessary steps are taken to protect financial and monetary stability,” a spokesman said.
Last week saw major stock markets suffer their worst weekly performance since the 2008 Global Financial Crisis. But investors are now hoping that central banks around the world will now work in unison to support financial markets as the coronavirus outbreak spreads.
On Monday the privately-run Caixin/Markit Manufacturing Purchasing Managers’ Index showed the fastest rate of contraction in China’s factory activity since the survey was launched in 2004. That followed the release on Saturday of equally weak official numbers.
Both sets of data come after employers across the country were ordered to remain closed after the annual Chinese New Year holiday as part of attempts by authorities to stem the spread of the virus.
The falls, which were even worse than the slump seen during the 2008 global financial crisis, highlighted the outbreak’s huge impact on the world’s second-largest economy.