Fears that a coronavirus-inspired plunge in Chinese share prices would prompt a global selloff proved unfounded as investors in Europe and the US shrugged off the biggest fall in the Shanghai stock market in five years.

Shares in London and New York rose – helping to reverse a part of last week’s falls – despite a drop of 9% at one stage in China’s main stock market index.

Investors in Europe and North America said the Chinese markets were catching up with bourses elsewhere in the world after being closed for more than a week during celebrations to mark the lunar new year.

Despite more cases of the coronavirus being confirmed, stock markets stabilised on hopes that there would be a repeat of what happened during the Sars outbreak in 2002-03, when share prices quickly regained all their lost ground once the virus had been contained.

The latest losses were the worst on the Chinese markets since 2015 although they pared back slightly later in the day to 8%. It came as the death toll from the outbreak rose to 361 with more than 17,000 people infected.

In the City, the FTSE 100 closed 40 points higher at 7,326, while New York’s Dow Industrial average was up more than 300 points in early trading.

Seema Shah, the chief strategist at Principal Global Investors, said : “At the end of last week, markets appeared to finally succumb to the weight of fears surrounding the coronavirus outbreak, but today they are once again attempting to find solid ground. Even the Composite Shanghai Index’s 9% plummet, shockingly large on the surface, is a cumulative response after the holiday break had kept China’s markets closed since 23 January. Indeed, investors are already wondering if this is the moment to re-enter Asian markets.

“Certainly, if the Sars episode is anything to go by, we should expect markets to bounce back sharply once the outbreak has peaked.”