Boost for banks pushes FTSE higher

Banking shares helped lead the London market almost 1 per cent higher yesterday after a major French lender denied it was struggling to raise money on financial markets as a result of its exposure to Greek debt.

Banks have borne the brunt of fears that Greece is close to a default in recent days, with French banks particularly badly hit.

But the benchmark FTSE 100 Index lifted 44.63 points, or 0.9 per cent, to 5,174.25, with several financial stocks among the biggest risers, after BNP Paribas “categorically denied” reports it was unable to raise dollar funding, helping it undo its earlier losses and make late gains.

The gains came despite international alarm over Europe’s debt crisis reaching new heights, with US president Barack Obama pressing the bloc’s big countries to show leadership as the talk of a Greek default escalated.

German chancellor Angela Merkel sought to quash talk of an imminent Greek default or exit from the eurozone, but confusion over whether she would issue a joint statement on Greece with French president Sarkozy left European markets nervous.

Confidence in the 17-nation currency area was further dented when Italy was forced to pay the highest interest rates since joining the euro in 1999 to sell five-year bonds.

Yusuf Heusen, sales trader at IG Index, said: “Markets are risking getting a little ahead of themselves – yes, the Italian bond auction has gone off successfully but there’s still an awful lot that needs to be overcome.”

Despite the requirements of the Vickers report into the future of Britain’s banking sector, UK banks made solid gains with Royal Bank of Scotland up 1.1p at 21.9p, Lloyds Banking Group ahead 1.3p at 31.8p and Barclays 6.7p stronger at 148.3p.

The London market, which had been down by more than 1 per cent in earlier trading amid the eurozone gloom, was also boosted after US imports pricing data was not as weak as expected. The Dow Jones Industrial Average was flat at the time the London market closed.

The biggest top-flight fall of the day came from Cairn Energy, which slumped 8.2 per cent, or 25.5p, to 287p after it said it had failed to find oil with its second well off the coast of Greenland.

Shares have now fallen some 30 per cent since Cairn announced in August that its first Greenland offshore well to be drilled this year had come up empty. Exploration is now moving south to drill the last two wells in the 2011 programme.

In the FTSE 250, Mitchells & Butlers followed Monday’s 7 per cent rise with another gain of 7 per cent after billionaire currency trader Joe Lewis failed with a takeover approach for the pub chain.

The tycoon’s investment vehicle Piedmont is now considering whether to raise its offer to 230p a share, equivalent to £941 million, although M&B has said it also planned to reject this.

Its shares were 15.4p higher at 251p yesterday, suggesting further developments were likely in the saga.

The pound slipped on currency markets after Bank of England monetary policy committee member Adam Posen called for additional quantitative easing to avoid lasting damage to the economy. Sterling was at $1.58 against the dollar and €1.15 against the euro.