ROYAL Bank of Scotland shareholders had little to celebrate last year, but 2010 got off to a strong start in the first day of trading.
Shares in the bank, majority owned by the UK taxpayer, jumped almost 10 per cent on bullish broker comments and speculation that a Brazilian bank may buy a stake in it.
On Sunday there were reports that Itau Unibanco is considering buying shares in RBS or Lloyds Banking Group, although the lender yesterday denied this.
RBS also received a boost from Exane BNP Paribas, which upped its rating from "neutral" to "outperform".
Analyst Ian Gordon said that while for many RBS was "a stock to avoid", progress on asset disposals and greater certainty on the economy meant some investor confidence should return.
Shares in RBS responded by surging 9.9 per cent to 32.1p, making it the day's top gainer in the FTSE 100.
Elsewhere in the sector, Lloyds Banking Group rose 3.1 per cent to 52.26p, HSBC climbed 17.7p to 726.5p and Barclays gained 4.55p to close at 280.55p.
Buoyed by banks and rising commodity prices, the FTSE 100 closed up 87.46 points, or 1.6 per cent, at 5,500.34 – a level not seen since before Lehman Brothers collapsed in September 2008.
London's leading index was ahead throughout the session, with a strong start in New York boosting gains further.
Oil provided much of the momentum for the wider market, with crude prices hitting $81 a barrel on expectations of more cold weather, and news that Russia is limiting supplies to Belarussian refineries after failing to agree on terms for 2010.
Cairn Energy was the pick of the sector after it secured a second rig for a 2010 drilling campaign in Greenland.
Merrill Lynch analysts said they now expected Edinburgh-based Cairn to spend $400 million drilling in Greenland this year, and increased the bank's target price on the firm by 27p to 385p.
Shares in Cairn jumped 22.4p or 6.7 per cent to 355p. Rival explorer Tullow Oil rose 2.45 per cent to 1,337p, while BP climbed 2.3 per cent to 613.6p.
Confectionery group Cadbury was broadly unmoved despite reports that predator Kraft is preparing an improved offer.
There were also signs Nestl may be positioning to take part in a combined bid for Cadbury.
Evolution Securities analyst Warren Ackerman said: "Given the relatively conservative buyback (of shares after a recent asset sale], Nestl could well be keeping its powder dry to possibly get involved in Cadbury, probably alongside Hershey".
Cadbury shares are already trading well above Kraft's tabled hostile offer, and it closed up just 7.5p at 805p.
The fallers' board was littered by property companies, hit by news that Hammerson had sold a building in Paris for less than its book value.
Hammerson was the biggest faller in the FTSE 100, dropping 2.8 per cent, or 11.8p, to 412.2p. British Land was also down, losing 13.2p to close at 466.8p.
Housebuilders were also lower, with Bovis Homes down 17.3p to 417.4p and Bellway off 26p at 792p. The two were some of the biggest fallers in the midcap FTSE 250 index.
On Aim, analysts at Ambrian issued a bullish "buy" note on wind farm group SeaEnergy following the settlement of a long-running dispute over its activities in the Caspian Sea. Analyst Dean Cooper said the settlement "confirms the intent of SeaEnergy to divest its legacy oil and gas interests to become a pure-play marine renewables company".
Shares in the Aberdeen group, which was formerly Ramco Energy, rose 6.7 per cent to 56p, the highest level since August.