Stocks have rebounded as the Chancellor said the UK Government “stands ready” to act if there is instability in the global markets as they adjust to a period of higher interest rates.

It came as US Treasury Secretary Janet Yellen also signalled Washington would protect people’s deposits if the recent string of bank failures continued.

The S&P 500 was trading about 1% higher and Dow Jones trailing closely behind at 0.9% in early Tuesday trading.

The FTSE 100 recorded its strongest day this year, closing 1.79% higher at 5,536.22p, driven by positive sessions for the banking firms which sprang back after a recent sell-off.

Tuesday’s resurgence came as Jeremy Hunt sought to reassure UK investors and businesses.

Asked at the Lords’ Economic Affairs Committee whether the UK financial system was “resilient enough”, he said: “The Bank of England’s view is that the answer to that question is ‘Yes’.

“They think that the stress test they did, notwithstanding your question, shows that the system is resilient.

“I think we have to recognise that we are undergoing a period of change as we move from a period of extremely low interest rates to a period of higher interest rates. And that is causing, globally, adjustments that have to be made and we have to remain vigilant.

Mr Hunt also said he “wholly supported” the decisions that led to the rescue takeover of Credit Suisse by UBS over the weekend.

NatWest surged up of the blue-chip index during Tuesday’s session, with its share price jumping by 5.7%. Barclays was close behind with shares up 5%, while Standard Chartered and Lloyds were also trading higher.

Ms Yellen is expected to say that overall “the situation is stabilising, and the US banking system remains sound” at a speech for the American Bankers Association on Tuesday.

The remarks follow the collapse of Silicon Valley Bank and Signature Bank earlier this month.

The failures were triggered by depositors rushing to withdraw money amid anxiety over the bank’s health, known as a “bank run”.

And last week, a group of the biggest US banks raised 30 billion US dollars (£24.5 billion) in funds for regional lender First Republic Bank, but its share price still crashed by more than 45% on Monday.

In her prepared remarks, she says the US Government’s intervention in the two bank collapses was necessary to “protect the broader banking system”, after promising that all depositors in both banks would be protected.

“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” she says, indicating that savers would be insured if another bank were to collapse.

The Bank of England, along with six central banks around the world – including the US Federal Reserve, joined forces on Monday to help contain the spread of the crisis by boosting dollar flows into the financial system.

It means that banks can borrow dollars from the central bank through the course of the seven-day-a-week facility.

But so far, no banks have utilised the swap line, suggesting that stress levels in the UK banking system are currently low.