Banks cash in on news of bailout

BANKS led the charge on the FTSE 100 yesterday as the index leapt 5.2 per cent in the wake of the European Union's latest attempt to stop the Greek debt crisis from spreading.

The Footsie – which fell 2.6 per cent on Friday and by more than 7 per cent over the week as a whole – recovered in spectacular fashion, gaining 264.4 points to close at 5,387.42. This was the top flight's best session since December 2008.

The relief rally was matched on Wall Street, where the Dow Jones industrial average stood 4 per cent higher at the time of London's close.

There were even bigger gains in Europe, with France's CAC 40 soaring by 9 per cent.

The 750 billion (650bn) bailout package to prop up the single currency, backed by the eurozone nations and the International Monetary Fund, boosted confidence shattered by the Greek debt crisis and pushed markets higher.

Meanwhile, talks between Conservatives and Liberal Democrats over a possible coalition had earlier helped settle nerves following the hung parliament, with both sides committed to tackling the deficit.

The stock market had closed by the time it emerged that Nick Clegg had also requested formal talks with the Labour Party.

After being hit by a major sell-off last week, the euro climbed to almost 1.31 against the dollar before easing. Sterling was above 1.15 against the single currency after peaking at 1.17 during a volatile session.

But the pound took a hammering against the dollar as news broke of the Lib Dem's talks with Labour. Having breached the psychological $1.50 barrier earlier in the day, sterling fell back below the $1.49 mark in the aftermath of Gordon Brown's resignation as Labour leader.

Elsewhere, the Bank of England's decision to maintain interest rates at a record low of 0.5 per cent came as little surprise to markets.

Stocks hit hardest by fears over their exposure to debt-laden Mediterranean nations benefited from the rebound.

The three biggest risers of the session were from the banking sector, with Barclays up 16 per cent, or 45.9p, to 329.6p, closely followed by Lloyds Banking Group and Royal Bank of Scotland, with gains of 14 per cent. Lloyds was up 7.47p to 61p and RBS cheered 6.25p to 51.75p.

Heavyweight mining firms also underpinned the advance, helped by deal-making in the sector. Kazakhmys was one of the best performers, up 128p to 1,325p, while Vedanta Resources added 235p to 2,551p.

BP was one of only two blue-chip fallers, dropping 4.7p at 549.2p after it said that the total costs of its Gulf of Mexico oil spill so far was $350 million (234m).

British Airways shares were 6 per cent higher, despite the Unite trade union announcing a series of five-day strikes in a row over jobs, pay and conditions.

The upbeat mood was shared in the FTSE 250 index, which rallied 5 per cent after suffering a slump on Friday afternoon.

One of the biggest moves in the second tier came from Enterprise Inns amid speculation that it is close to unveiling a refinancing of its 1bn bank loan. Shares were 12 per cent higher, up 14.6p to 122.1p, ahead of the firm's interim results today.