EU stress test news lifts bank shares

LONDON FTSE 100 CLOSE 5,105.45 +90.63

BANKS led the FTSE 100 to nearly 2 per cent of gains yesterday after the European Union's stress test for the industry proved not to be as stringent as was first feared and two City grandees outlined plans to launch a new banking operation.

Shares were also boosted by the International Monetary Fund's upgrade of global growth prospects. Despite a downgrade for the UK's prospects, the Washington-based body forecasts world growth of 4.6 per cent this year, up from 4.2 per cent in April.

The top flight consolidated Wednesday's rise above the 5,000 barrier, cheering a further 90.63 points to 5,105.45 as investors found their risk appetite.

On Wall Street, the Dow Jones Industrial Average was higher in early trading after a sharper-than-expected fall in initial jobless claims in the US last week.

Banks rose on hopes that a Europe-wide stress test of major players in the sector will represent the next step in restoring confidence following the financial crisis.

Michael Hewson, analyst at CMC Markets, said: "A number of factors have combined to improve risk appetite over the past few days. As far as the UK is concerned there is little concern about UK banks as they have already passed much more stringent tests, which had been previously done by the UK authorities some time ago."

Improved certainty over the eurozone was good for the single currency, which strengthened to €1.19 against sterling. The pound also lost ground against the dollar at $1.51.

Shares in the financial sector were helped by news of a new venture from Lord Levene and Sir David Walker, which aims to bid for taxpayer-backed assets.

The corporate heavyweights are planning to list an acquisition vehicle on the stock market and have already got investment banks and advisers on board for the move.

Part-nationalised Lloyds Banking Group and Royal Bank of Scotland were beneficiaries, with shares gaining 2.5p to 60.7p and 1.5p to 44.4p respectively. Barclays added 10.4p to 302p.

Glasgow-based temporary power firm Aggreko took top spot on the risers' board after HSBC brokers started coverage with a "buy" rating and rumours of bid interest did the rounds. Shares rose 6 per cent, or 83p, to 1,545p.

Going the other way was supermarket Sainsbury's, which fell 3.3p to 341p as rumours of Qatari interest in a takeover cooled.

In the FTSE 250, recruitment firm Hays was a strong performer after its first year-on-year growth in net fees for two years. The improvement, which drove shares 4.6p higher to 95.15p, came despite a slump in public sector demand in the UK.

But embattled social housing firm Connaught was suffering in the second tier.

Connaught, which has seen its share price slump by almost two thirds in the past two weeks after warning over the impact of the Budget, fell a further 6 per cent, down 6.9p to 111.1p.

Elsewhere, retailer JJB Sports was 8 per cent better off - up 1p to 14p - after it revealed that sales soared 22.3 per cent in the six weeks to 4 July, despite England crashing out of the World Cup in South Africa.z