Halifax Bank of Scotland (HBOS) enjoyed a rare day in the sun as it was buoyed by renewed confidence over its takeover by Lloyds TSB.
The stock jumped 21 per cent, making it the leading FTSE 100 Index riser, as the Prime Minister and a major investor signalled support for the deal.
Other banks were also in better shape amid expectations of US Senate agreement for the stalled $70
0bn (£392bn) banking rescue, helping the Footsie close ahead 57.14 points at 4959.59.
London market gains would have been even more impressive but for sliding mining stocks after
Xstrata pulled out of a £5bn bid for
Lonmin. Opening losses on Wall Street ahead of the Senate vote also proved a drag during the afternoon.
HBoS was the main Footsie stock in focus, and it rose 25.7p to 148.1p, more than recouping a 14 per cent fall on Tuesday amid concerns the rescue deal might have to be repriced.
Lloyds TSB followed close behind, adding 231/2p to 250p, while elsewhere in the sector
Barclays picked up 141/2p to 341p or 4 per cent. Gains for
Royal Bank of Scotland were limited to a penny at 180p.
Mining stocks fell on to the back foot after Xstrata's decision to axe its £5bn Lonmin bid due to turmoil in global credit markets. Xstrata lost 33p to 1683p, while Lonmin plunged more than 20 per cent or 461p to 1813p.
Elsewhere
Vedanta Resources slipped 118p to 1035p after being downgraded by Goldman Sachs.
BHP Billiton was also 50p lower at 1209p.
Supermarket giant
Tesco enjoyed another impressive session after it posted first-half profits of £1.43bn on Tuesday.
The firm added 6.9p to 3941/2p after Brewin Dolphin analysts also emphasised the defensive nature of the food retail sector. Retailers were helped by mounting hopes of an earlier than expected rate cut due to the current economic gloom.
Wm Morrison added 6p to 2641/2p, although
J Sainsbury was 81/2p down to 3391/2p. Ahead of an eagerly awaited trading update today,
Marks & Spencer rose 83/4p to 2101/4p.
The retail cheer saw fashion chain
Next on firmer ground too, adding 40p to 1059p.
Outside the top flight,
Domino's Pizza dipped 51/2p to 1913/4p, in spite of a rise in third-quarter sales.
Online fashion retailer
ASOS was another faller in spite of stellar sales figures as analysts said worsening economic conditions could eventually rein in its rapid growth. Shares were off 22p to 3283/4p, or 6 per cent.
The interest rate cut hopes meanwhile pushed several housebuilders higher in the FTSE 250 Index.
Barratt Developments cheered 43/4p to 1091/2p,
Taylor Wimpey added a penny to 361/4p, while
Bovis Homes added 81/2p to 3851/2p.
The Footsie's four biggest risers were HBoS, up 25.7p to 148.1p, Lloyds TSB up 231/2p to 250p,
Standard Life up 17p to 257p, and
Eurasian Natural Resources which closed ahead 23p to 528p.
The biggest fallers were Lonmin, down 461p to 1813p and Vedanta Resources, off 118p to 1035p.
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