The US Federal Reserve has taken emergency action to save the country's biggest financial institution from bankruptcy.

American International Group will get an $85bn loan, in return for an 80% public stake in the firm.

The rescue follows the collapse of US investment giant Lehman Brothers, which caused share prices to plummet across the world's financial markets.

Meanwhile, Barclays said it had reached a deal to buy Lehman's US investment banking and capital markets businesses.

The $250m deal, which is subject to approval from the bankruptcy court, will make the British bank the third biggest investment bank in the US.

The rescue of AIG - which has a trillion dollars in assets and insures bank loans around the world - prompted a tentative rally on Asian markets.

There were gains in Tokyo, Taiwan, Singapore and Seoul, though prices in Hong Kong fell after starting higher.

The dollar also rose against major currencies.