LONDON (AP) - Hard-hit British banking stocks recovered yesterday after the government announced a £50 billion ($88 billion) plan to partly nationalise major banks and promised to guarantee a further £250 billion ($438 billion) of bank loans to shore up the beleaguered sector amid the world financial crisis.

But the drastic moves failed to soothe wildly fluctuating markets, and many shares ended the day sharply lower.

Prime Minister Gordon Brown billed it as a "radical" plan to stabilise banks so that they could resume normal lending and other operations, rather than trying to buy up bad assets as the US is doing.

"All these are investments being made by the government which will earn a proper return for the taxpayer," he told a news conference. "This support is on commercial terms. We expect to be rewarded for the support we provide."

At the same time, the Bank of England made at least £200 billion ($350 billion) in short-term loans available to banks to help restore liquidity to the frozen credit market.

The Bank of England then announced an early surprise cut in its base lending rate of half a point to 4.5 percent. A rate cut had been expected, but yesterday's action was a day earlier than scheduled, and came in concert with similar cuts from six central banks around the world, aimed at stimulating the global economy.

Under the British government plan, the Treasury said that it will offer to buy up to £50 billion worth of preference shares from at least eight of the county's largest banks and building societies, including HBOS plc., Barclays plc. and Royal Bank of Scotland plc. The investment will give taxpayers a share stake in many of the country's biggest banks. HSBC Bank plc. said it had endorsed the recapitalisation plan but said it intended to rely on its own resources and not take on the government at a shareholder.

The FTSE-100 index closed down 5.18 percent at 4,366.69.

Shares in banks - many of whom had lost half their value on the stock market in the past week - staged a recovery in trading on the London Stock Exchange. HBOS shares jumped 24 percent and the Royal Bank of Scotland climbed two percent, falling back from earlier surges. Other banks saw their share prices stabilise, despite the negative overall global economic outlook: HSBC and Lloyds TSB dipped 2.5 percent and 6.9 percent.

"This is not a time for conventional thinking or outdated dogma but for the fresh and innovative intervention that gets to the heart of the problem," Brown told a news conference.

Treasury chief Alistair Darling said the government was "absolutely not" seeking to take control of the banks.

"We are not talking about running the banks. The banks will are going to be run as commercial operations, albeit with government help in restructuring," he said at the news conference with Brown.

But the Treasury said government support would come with strings attached: "The government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers."

Britain had previously nationalised two mortgage lenders, Northern Rock and Bradford & Bingley. It hopes to return them to the private sector for a profit when the financial system returns to normal.

In yet another move to restore Britons' confidence in the banking sector, Mr. Darling also announced yesterday that the government would guarantee British savers' accounts in Icesave, the Internet operation of Iceland's Landsbanki which was nationalised, and suspended its operations, on Tuesday.

Brown said the government was taking legal action against Icelandic authorities to recover funds deposited in British branches of Icelandic banks, but details of the British guarantees on Icelandic accounts were not immediately spelled out.

Analysts said it was still too early to tell how effective the unprecedented government and Bank of England measures would be.

"The markets are still getting to grips with the detail," said Keith Bowman, equity analyst Hargreaves Lansdown Stockbrokers. "I hope to see some stabilisation by the end of the day, but what we actually see is anybody's guess."

The reason it is difficult to foresee exactly what the market will do going forward is that the British government's plan - while massive in monetary terms and scope - still cannot single-handedly fix the problematic macroeconomic backdrop.

"You've got two big pictures at work here," said Nic Clarke, banking analyst at Charles Stanley Stockbrokers, "worries about capital, which these plans will help, and worries about the global economy going into a deep recession, which these plans cannot solve."

The rescue plan marks a sharp turn in the fortunes of Britain's proud banking sector, which until this week seemed to be more immune to the global financial crisis than America's financial institutions.

Just three weeks ago, Barclays snapped up the US banking operations of Lehman Brothers, the collapsed Wall Street giant.

On September 18, Lloyds TSB announced that it intended to take over HBOS in a government arranged commercial rescue of the country's biggest mortgage lender.