Bank shares lead market rise

Taxpayer-backed Royal Bank of Scotland led the way with a share price rise of 9% after brokers at Deutsche Bank introduced a buy rating on the stock.

The London market, which was closed for the bank holiday yesterday, was also catching up with gains overseas after positive consumer spending data in the United States and news of a merger of two major banks in debt-laden Greece helped ease fears of a global recession.

While the London market was closed yesterday, the Dow Jones Industrial Average in the US made gains of more than 2%, and Asian markets also pushed higher overnight.

There was also relief in the US after it became clear that tropical storm Irene had caused far less damage than had been feared, giving a lift to insurance stocks.

RBS, which is 82% owned by the taxpayer, was upgraded by Deutsche Bank, which said recent falls in its share price meant the stock now represented good value.

It added that while the bank still faced risks, including its exposure to Ireland and potential regulation, its earnings would ultimately be stronger than expected.

Shares in RBS rose to nearly 24p today, having dipped below 20p for the first time in two years earlier this month amid the market chaos sparked by fears that the US and eurozone debt crisis would plunge the world economy back into recession.

Despite today’s gains, RBS’s share price is still less than half the 50p per share paid to bail out the bank, meaning the Government is currently still facing a loss of some £23.4 billion on its investment.

Banking stocks in the UK were also boosted after business body the CBI joined the British Bankers’ Association in calling for proposed reforms to the banking sector to be delayed.

The Independent Commission on Banking is due to give its full report next month detailing proposals to force banks to ring-fence their retail and investment arms.

However, the industry has warned the reforms would weaken UK banks’ profits and make them less competitive.