Dollar deal drives up bank shares

The dollar liquidity boost, which will be provided by several central banks including the Bank of England helped push the FTSE 100 Index up 2.1 per cent to 5,337.52.

Traders were also encouraged by comments from Nicolas Sarkozy and Angela Merkel pledging to do all they could to keep Greece in the eurozone.

Michael Hewson, market analyst at CMC Markets, said: “Equity markets continued their upward momentum as investors appeared to take comfort from the words of support from Europe’s leaders with respect to Greece, shrugging off a downgrade of European growth forecasts by the EU.”

Yesterday’s gains left the market just below the level of intermediate peaks reached earlier this month, and in mid-August.

The pound was down at €1.14 against the euro, after the single currency was boosted by the central banks’ measures. Sterling was up at $1.58 against the dollar.

The emergence of rogue trading at Swiss bank UBS failed to derail markets, even though it warned that estimated losses of $2 billion (£1.3bn) stemming from unauthorised trading in London could tip it into a third-quarter loss. Instead, the recovery of banking stocks in London following the removal of uncertainty caused by the Vickers report continued after an upbeat note from Nomura.

The broker upgraded HSBC and Barclays to “buy” from “neutral”, causing the pair to rise 19.6p to 521.1p and 6p to 158p respectively. Royal Bank of Scotland, which dipped to 20p earlier this week, rose 0.9p to 23.7p, while Lloyds Banking Group was the biggest riser, up 7 per cent, or 2.4p to 35.9p.

Retail stocks rallied for a second successive session after B&Q-owner Kingfisher produced better-than-expected half-year results.

Kingfisher was up 5 per cent or 11.5p to 251.1p, after a number of analysts upgraded their forecasts in the wake of a 24 per cent rise in half-year profits to £439 million.

Marks & Spencer also lifted 4.3p to 330.8p and Primark-owner Associated British Foods added 17p to 1,083p.

Kesa Electricals overcame a 22 per cent drop in like-for-like sales at Comet to post a 5 per cent share price rise. Analysts were initially disappointed that there was no update on the possible sale of the electricals chain but shares later recovered to stand 4.5p higher at 91.6p.

Dunelm was another retailer on the rise after it revealed a 9 per cent rise in pre-tax profits to £83.6m and hiked its total dividend by 43.8 per cent to 11.5p.

Shares rose 6 per cent or 24.8p to 451.9p.

Among the Scottish stocks, shares in Axis-Shield fell 12.25p or 2.5 per cent to 460.75p after being downgraded by the Oslo-based research group DnB Nor.

The Dundee-based medical testing kit maker is embroiled in a contested bid battle with US life sciences giant Alere, which has offered to buy it at 460p a share. The note said that while it was still likely that Alere would raise its bid, the shares now carried about 30 per cent downside risk in the short term if it were to withdraw its offer.