Bank-led rally brings market relief

THE Footsie staged a much-needed rally yesterday as European markets reversed some of their recent punishing declines.

Banks and miners drove a 2 per cent recovery on London's FTSE 100 index – up 97.4 points to 5,038.08 – while positive economic data in the United States helped fuel the rally.

America's Dow Jones Industrial Average gained more than 100 points soon after opening, boosted by news that US new home sales have risen to their highest level since May 2008.

Investors were also buoyed by an upbeat report showing US demand for manufactured goods rose 2.9 per cent in April.

Michael Hewson, analyst at CMC Markets, said: "In a day of contrast to the big losses we saw on Tuesday, we have pretty much come full circle after Tuesday night's late US rally, carried on it where it left off with the two sectors – banking and mining – that took the biggest hits at the forefront of the rebound."

London's gains looked to have been fuelled by bargain hunting after falls in the previous session took the Footsie to levels not seen since last September on the back of European debt worries and heightened military tensions in Korea.

The bounce back was being led by a recovery for the mining and banking sectors caught in Tuesday's sell-off.

An upbeat note on the bank sector from broker Credit Suisse added to the positive sentiment, with the group declaring that "UK banks are investable and at current levels offer value".

Part-nationalised Lloyds Banking Group lifted nearly 7 per cent or 3.3p to 53.8p, followed by Barclays, ahead 13.2p to 297p, and taxpayer-backed Royal Bank of Scotland, up 2.4p to 45.1p. HSBC failed to benefit from the rally as shares dropped 1.7p to 617.8p.

Among miners, Kazakhmys led the way with a 77p hike to 1,149p, while Lonmin added 100p to 1,661p and Rio Tinto lifted 208.5p to 3,064.5p.

Business telecoms firm Cable & Wireless Worldwide was another strong riser in London after delivering the first set of figures since its de-merger, which met market expectations. The company said market conditions were improving and that its main operations had gained share, triggering a 5 per cent or 3.6p rise to 79.45p.

Luxury fashion brand Burberry also impressed investors after a 23 per cent rise in full-year profits to 215 million exceeded City forecasts, prompting shares to rise 46.5p to 659p. It also lifted its dividend pay-out by 17 per cent.

Pub giant Punch Taverns rose 6 per cent in the FTSE 250 Index – up 4.65p to 69.8p – after yesterday's announcement of new boss Ian Dyson's start date. The Marks & Spencer finance chief will take over the top job at Punch on 6 September.

Back in the top flight, a number of stocks failed to take part in the wider bounce back as shares were hit by turning ex-dividend, meaning that new investors will not take part in the next shareholder payout. This saw International Power drop 4.5p to 284.5p and retail chain Next ease back by 32p to 1,983p.

Meanwhile, Edinburgh-based distribution and aviation group John Menzies enjoyed a 10.6 per cent boost to end the day at 405p following on from last week's positive trading update.