Rescue relief lifts Footsie 8% but HBOS slides again

Published on Monday 13 October 2008 21:53

LONDON FTSE 100 CLOSE 4,256.9 +324.8

INVESTOR cheer over UK and continental European bank rescue plans helped the main London share index soar more than 8 per cent higher yesterday in the second-biggest one-day gain in its history.

The FTSE 100 surged 324.8 points to 4,256.9 as blue-chips recovered most of Friday's devastating near-9 per cent fall.

Heavily weighted miners and energy companies led the charge after commodity prices ticked up.

Banks experienced mixed fortunes as the wider market raced ahead in response to the government's 37 billion banking rescue plan.

Royal Bank of Scotland, HBOS and Lloyds TSB – the three banks being thrown a massive funding lifeline from the Treasury – were all nursing sizeable losses, topping the FTSE biggest fallers' list yesterday. But Barclays and HSBC, which are not using government funds, were on the front foot.

Meanwhile, New York's Dow Jones Industrial Average also advanced strongly in early trading, up more than 6 per cent.

In London, HBOS was the biggest Footsie faller, down 28 per cent or 34.2p to 90p, after Lloyds TSB revised the terms of its takeover and the mortgage giant reported a deterioration in trading conditions.

Lloyds TSB was down 14 per cent or 27.4p to 162p after earlier rising 11 per cent.

Both banks' existing shareholders are set to see their stakes diluted as a result of the government's rescue package.

Shares in RBS, which could end up getting 20bn in taxpayers' cash, experienced a rollercoaster ride as traders digested the possibility that about 60 per cent of the company could soon be in public hands. Dividend payments have been ruled out for the foreseeable future.

RBS shares fluctuated between positive and negative territory, before settling 8 per cent or 6p lower at 65.7p.

Barclays, which plans to boost its capital position through its own means, was 4 per cent higher, a gain of 7.75p to 215.25p. HSBC rose 59.25p to 849.25p as it is not part of the bail-out announcement.

"We are in a world where it has got so bleak, just less bad is going to feel good," said Philip Lawlor, chief portfolio strategist at Nomura – referring to the slight easing in interbank lending rates.

Outside the banking sector, tour operator TUI Travel was thrust near the top of the risers' board amid talk its German parent company could seek to buy the remaining stake in the UK operation.

The group said it had received no approach, but was forming an independent committee to "consider the merits of such a proposal if one is made".

Oil prices rose off recent year-lows to more than $82 a barrel at one stage, helping BP rise 11 per cent or 42p to 418.25p. Rival Royal Dutch Shell firmed 107p to 1,387p.

Retailers also enjoyed a recovery, with Next up 11 per cent or 99.5p to 1,047p and Marks & Spencer up 13.5p to 231.5p.