Chancellor Alistair Darling is set to announce details of a Ј50bn rescue package for the UK banking system.
Details of the scheme, expected to be unveiled at 0700 BST, will include a proposal to use taxpayers' money to take stakes in major banks.
The initiative is aimed at stabilising the financial system by giving banks - who usually rely on world money markets - greater access to cash.
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HBOS lost 42% of its value while Royal Bank of Scotland slipped 39%.
However the FTSE 100 index rallied as word of the proposals began to emerge.
BBC business editor Robert Peston - who revealed that the government was to invest in banks, effectively semi-nationalising them - said there was hope from some that the move would "bring a bit of calm to the extraordinarily turbulent banking market".
With a Ј50bn rescue package the equivalent of Ј2,000 per taxpayer, the decision was a "big moment" for Prime Minster Gordon Brown, he added.
"This is the first genuine, full-scale economic crisis he has had to face since he entered government, as chancellor of the exchequer, in 1997.
"His place in history will depend on whether taxpayers' cash is being used to slow or stem the downward spiral in the economy or whether this is good money disappearing down a deep black hole."
Confidence collapse
The investment in the banks is intended to make them stronger and more confident to lend.
There has been a collapse of confidence in money markets - with banks being increasingly nervous to lend to one another over fears they may not get their money back.
The government intervention will be designed to try and ensure that big banks have enough cash to fund day-to-day operations.
"We need a full and comprehensive plan. We don't need any more step-by-step measures," said Peter Hahn, a banking expert at the Cass Business School.
"Markets should react positively but we need to know what the details are."
(BBC)
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