HBoS and Lloyds rose by 15 per cent and 5 per cent, respectively, following big jumps for both groups on Wednesday, as another large institutional investor in both firms backed the Lloyds TSB-HBoS tie-up.

However, plunging oil and metal prices saw heavyweight energy and mining stocks under pressure and the Footsie closed the day down 89.25 points at 4870.34.

Opening falls on New York's Dow Jones Industrial Average added to the jitters, with US investors concerned about the Government's $700bn banking bail-out.

More gloomy US economic data weighed heavy on stocks on both sides of the Atlantic.

Oil fell more than $4, with gold also down more than $40 or 5 per cent.

HBoS was the Footsie's leading riser – up 22p to 170.1p – as investment giant M&G added its backing to last month's original takeover announcement by Lloyds TSB. Lloyds itself added 12p to 262p.

Other banks were not so fortunate, with Barclays down 3p to 338p and Royal Bank of Scotland 4p lower at 176p.

Marks & Spencer was another big riser in a stronger session for retailers, in spite of the high street giant unveiling a 6.1 per cent drop in like-for-like sales during the 13 weeks to September 27.

The performance was better than expected and, coupled with plans to shave more than £100m off investment plans that were well-received by analysts, M&S's shares rose more than 8 per cent, or 17p to 2271/4p.

Retailers were also helped by fast-growing hopes of an interest rate cut next week as economic gloom deepens.

Clothing chain Next was in better shape, up 40p to 1099p, while building materials giant Wolseley added 3p to 404p.

Bicycle and car parts retailer Halfords joined the retail
rally in the FTSE 250 Index
after displaying its defensive qualities with a solid sales
performance for the 13 weeks to September 26. Shares jumped 16p to 272p.

Currys owner DSG International shared in the positive sentiment with a rise of 21/4p to 491/4p, while pubs chain JD Wetherspoon added 81/4p
to 2521/4p.

Directories firm Yell surged in the second tier by 91/2p to 90p. Analysts said the rise reflected hopes that a debt refinancing was on the cards.

Vedanta Resources was the leading Footsie faller – down 13 per cent or 123p to 912p – in the wake of a Goldman Sachs downgrade.

Oil prospector Tullow Oil fell 721/2p to 6381/2p. But British Airways was flying high, up 4.6p
to 178.1p.

The Footsie's four biggest risers were HBoS, up 22p to 170.1p, Marks & Spencer up 17p to 2271/4p, Lloyds TSB ahead 12p to 262p and Pearson, which closed 321/2p higher at 6241/2p.

The biggest fallers were Vedanta Resources, down 123p to 912p and Tullow Oil, off 721/2p to 6381/2p.