The Exchange suspended connections at around 9.15 am, meaning no orders could be entered or deleted. The shutdown came amid a surge in share trading as dealers responded to last night's rescue by the US Government of loss-making mortgage houses Fannie Mae and Freddie Mac.

As the lights went out, the LSE said connectivity would be re-enabled at around 11.45 am but with an auction phase before the resumption of continuous trading. But as shares continued to climb on other exchanges, the LSE remained stubbornly closed until 4pm, leaving furious traders with just thirty minutes to assess the damage before the end of play.

The snafu comes at an inopportune time for the LSE as it continues the upgrade of its new TradElect platform to improve capacity and fend off competition from a host of competitive exchanges, dark pools and Multilateral Trading Facilities.

The Johannesburg Stock Exchange, which uses TradElect, was also forced to suspend trading.

The LSE failed to give an adequate explanation for the breakdown, but fingers are being pointed at a minor weekend upgrade instigated as part of the Exchange's ongoing integration work with Borsa Italiana.

Traders said that where possible they had resorted to Turquoise and Chi-X, two of the LSE's new competitors, to continue trading through the problems. However, the reliance of most players on the LSE as a source of reference pricing limited the fall-out.

Bob McDowall, research director, at TowerGroup says: "This is very damaging to the LSE reputation and to London as a financial centre for trading equities. The LSE will almost certainly lose competitive advantage to the alternative trading systems and even other global exchanges."