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Lehman Brothers' call comes ahead of today's Federal Reserve meeting where the central bank is expected to cut interest rates sharply in the wake of Bear Stearns' collapse.

The FTSE 100 index bounced off its lowest level since 2005, moving in tandem with world markets, while Fed fund futures priced in a 94% chance of a 100 basis-point rate cut.

Ian Scott, Lehman's global strategist, told clients: "Events in the past couple of days indicate that global equity markets have moved on from discounting the recessionary impact of lower earnings to considering the implications of a systemic reduction in the availability of credit to otherwise profitable businesses and creditworthy households.

"We think this likely represents the culmination of the current crisis in capital markets.

"The authorities, in this case the Fed, will continue to respond aggressively in such circumstances and we believe this response will eventually be seen as having drawn a line under the recent problems."

He welcomed the Federal Reserve's move over the weekend to offer secured loans directly to primary dealers, creating a "liquidity backstop" for a wide variety of investment-grade assets.

Lehman's team also noted that, for the first time since mid-2007, the reaction to fiscal policy announcements has been more negative in equity markets than in credit. While stocks were slumping yesterday, movements in the markets for corporate debt and default protection were much more modest.

"Investors seem to have interpreted these recent events as more damaging for equities. Yet, if as seems likely, the Fed now stands behind a much broader range of financial assets than was the case, and a repetition of the crisis of confidence at Bear Stearns would seem to be unlikely, stocks should benefit too," Scott wrote.

Meanwhile, according to Lehman, the pace at which equity fundamentals are deteriorating has eased. Earnings revisions, while still downwards, are not declining as rapidly as they were a few weeks ago, while valuations are pricing in as bad a crisis as we have seen in the past thirty years.

In the past, stocks have bottomed within a month of the turn in earnings revisions, it argued.

Scott concluded: "An increasingly aggressive US policy response designed to prevent a drying up of credit for profitable companies and creditworthy households, coupled with a market that has already declined sharply, has brought about a set of extremely attractive valuations. In a world of securitised debt, credit cycle losses will inevitably be felt at a much earlier stage in a downswing than has been the case in the past. Accordingly, we think the current position may eventually be viewed as close to the worst point for this credit crisis."

Separately, Lehman today reported first-quarter earnings down 57% at 81 cents a share, considerably better than the 72 cents analysts had forecast. Quarterly profit at its larger peer Goldman Sachs also beat expectations.

Back among the research notes, Morgan Stanley saw some value in the hard-hit UK banking sector, which had led markets lower yesterday as the run on Bear Stearns intensified concerns about the funding position of mortgage lenders such as HBOS.

"Since the outset of the credit crunch the market has focused almost entirely on loan to deposits for spotting those banks most reliant on wholesale funding," analyst Michael Helsby wrote. "While this measure is clearly relevant, it understates the reliance on wholesale for those banks that carry 'other' banking assets such as debt securities. Considering the full balance sheet mix of funding highlights the retail banks have less relative reliance on wholesale funding than people think."

Helsby argued that, despite market perception, HBOS is not that different to the other big banks, with 49% of funding coming from deposits. That compares with estimated 57% at Lloyds TSB, 60% at HSBC and 49% at Royal Bank of Scotland.

"We remain bearish on the outlook for the UK banks. This is based on an expectation that current write-offs and liquidity pressures combine with falling residential and commercial property prices to feed through to a meaningful downturn in the real economy," Morgan Stanley told investors.

"In this environment, we favour Standard Chartered and HSBC. We continue to feel that HBOS has been oversold, relative to the sector and noticeably to its closest peer, Lloyds TSB. Despite the falls, we remain cautious on RBS, Barclays, A&L and B&B. Against a more cautious macro backdrop we do not consider Lloyds TSB as defensive and remain underweight there too."

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