London FTSE 100 Close 5,156.84 +54.26

The benchmark FTSE 100 closed up almost 1.1 per cent at 5,156.84 following a fluctuating session that saw it rise almost 90 points higher at one stage and sink back into the red before a late recovery.

Michael Hewson, market analyst at CMC Markets, said: “European markets were somewhat mixed, with the Dax and the Cac-40 losing more ground but the FTSE 100 closing in positive territory boosted by some profit-taking, bargain hunting and some positive trading updates.”

UK shares also picked up despite a sharp fall in the pound against both the dollar to $1.596 and the euro to €1.14.

Currency markets were unsettled by the dramatic move by the Swiss authorities to weaken the Swiss franc with an announcement of a peg to the euro. The move by the Swiss also boosted the gold price briefly above $1,900 per ounce.

The Dow Jones Industrial Average opened after a long weekend about 2 per cent lower, as better-than-expected US services sector activity in August was overshadowed by a sell-off of US banks as investors reacted to the law suits issued by the Federal Housing Finance Agency (FHFA) against 17 banks over the subprime mortgage scandal.

UK banks also continued to suffer, with a bounce back from Monday’s pasting turned on its head as concern over the US litigation, as well as more eurozone sovereign debt fears, sent shares lower again.

Lloyds Banking Group rose slightly to 30.1p but Royal Bank of Scotland, which one broker suggested was most at risk of a hefty penalty from the FHFA, was 0.6p lower at 21.2p, while Barclays was also one of the largest fallers, down 3.4p at 150.8p.

The biggest rise of the session came from Whitbread after the leisure group posted a solid trading update and said it was confident of driving further growth from its core brands of Premier Inn and coffee chain Costa. Shares jumped more than 7 per cent or 106p to 1,563p.

Pub owner Greene King was another consumer-facing company in demand as it said like-for-like sales in its retail division rose 4.3 per cent in the ten weeks to Sunday, driven by a 4.7 per cent rise in food takings. Shares were up 3.4p at 434.9p.

But there was no respite for the retail sector after the British Retail Consortium said like-for-like sales dropped 0.6 per cent in August and broker Citigroup downgraded its ratings on a host of stocks. They included Marks & Spencer, down 0.6p at 301.8p, while B&Q owner Kingfisher fell 1.4p to 225.6p.

The biggest improvement outside the top flight came from plant hire firm Ashtead after it said pre-tax profits more than doubled in the first quarter of its financial year. Shares surged 19 per cent or 21.2p to 133.5p.

Among the Scottish stocks, shares in insulation firm Superglass continued to slide after the firm announced plans for a capital restructuring on Monday. They lost a further 25 per cent yesterday to close at 4.13p.

Drinks firm AG Barr was among those chosen by traders following the recent market sell off, with its shares gaining 53p to 1,158p.