Markets: Banks help Footsie regain ground

The FTSE 100 index staged a mini-fightback yesterday on the back of gains made by banking and mining stocks, but it was still more than 100 points down on the week.

The Footsie took a pasting on Wednesday and Thursday, dropping 188 points in two days, amid fears that China would increase its interest rates, choking Chinese demand for commodities.

But it regained 28.34 points to 5,896.25 yesterday as concerns of overheating in Asia began to subside.

Ongoing fears over the eurozone debt crisis and a weaker-than-expected show from American banks hit financials during the week, but these concerns eased yesterday as investors shrugged off the weak sentiment and were boosted by Thursday's strong earnings report from US bank Morgan Stanley.

Royal Bank of Scotland soared more than 6 per cent after reports that the part-nationalised bank and Treasury officials were examining ways in which the bank could secure an early exit from the government's asset protection scheme. RBS shares were up 6.5 per cent or 2.8p at 44.9p.

Morgan's 80 per cent jump in fourth-quarter profits also lifted the sector, with Lloyds up 0.6p at 67.4p, although Barclays was down 2.4p at 300.9p.

Miners, which were also boosted by marginally improved metal prices, made gains, with Anglo-Swiss group Xstrata up 13.5p at 1,402p, and platinum miner Lonmin up 9p at 1,753p.

Investors shrugged off official figures from the Office for National Statistics, which revealed that retail sales volumes declined 0.8% last month - the worst December on record.

Blue-chip retailers saw gains despite the report, with B&Q owner Kingfisher up 3.2p at 267.4p, Marks & Spencer ahead 1.1p at 368p and Primark owner Associated British Foods rising 7p to 1,086p.

National Grid reversed earlier declines to finish up 3p to 542p after New York regulators granted a smaller-than-requested rate increase in the state.

Outside the top flight, shares in outsourcer Mouchel jumped 20 per cent or 22.8p to 136.5p after construction firm Costain revealed a third takeover proposal worth more than 170 million.

And luxury goods group Mulberry continued its run of form, rising 55p to 1,305p after forecasting profits ahead of market expectations.

Finsbury Food, a supermarket cake supplier involved in this month's contaminated egg scare, saw its shares drop 0.3p to 24.3p after it said its insurer was disputing a claim over product withdrawal costs. Finsbury saw retailers pull some of its products from shelves, but with no risk to public health found, its insurer is challenging its claim.

The pound was up against the dollar, at $1.60, as traders were prepared to blame the retail figures on the impact of the snow. But sterling was down against the euro, at €1.18, after the single currency was buoyed by the strongest German business confidence survey for 20 years.

Other Scottish stocks couldn't match the gains of RBS. Among them, Melrose Resources fell 2p to 257p after asking shareholders to consider cancelling the company's share premium account.