Banking sector gains push FTSE into positive territory

Shares in Lloyds Banking Group raced 8 per cent higher yesterday as the part-nationalised player cheered investors with a surprise trading update revealing expectations for profits in 2010.

Fellow taxpayer-backed Royal Bank of Scotland also moved sharply higher on the welcome news from HBOS-parent Lloyds, which said recent bad debt levels had come in lower than previously forecast.

But the wider FTSE 100 Index limped to the close, up 7.51 points at 5650.13, after downbeat trading on Wall Street's Dow Jones Industrial Average pared back earlier gains.

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US stocks fell after renewed concerns about Greece's ability to pay its debts, which left investors questioning a global economic recovery.

Greece said it might need to turn to the International Monetary Fund for support if European leaders cannot agree on a bailout plan next week.

In the US, a rising dollar hurt crude oil prices and weighed on energy stocks.

The worries about Greece's debt problems sent the euro to more than a two-week low against the greenback. The stronger dollar, in turn, hit the price of dollar-denominated commodities such as oil and gold because it makes them more expensive for holders of other currencies.

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A looming congressional vote to overhaul the US healthcare system will keep health sector stocks in focus, with Aetna up 4.3 per cent at $34.66 after it forecast first-quarter earnings above consensus.

The pound, meanwhile, was under pressure after Bank of England policymaker Andrew Sentance said the UK still faced the threat of a double dip recession. The comment brought an end to sterling's mini-recovery, with the pound just above 1.50 against the US dollar.

As well as the rise in the Lloyds' share price, which climbed 45/8p to 601/8p, Royal Bank of Scotland lifted 2p to 44p and Barclays cheered 43/4p to 3575/8p, a gain of more than 1 per cent.

The state paid an average of 74p for its Lloyds shares, so even after Friday's surge the Government is still sitting on losses of around 3.5bn.

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The renewed appetite for riskier stocks meant some of the market's favoured safer stocks lost ground, causing Centrica to fall 71/8p to 2907/8p, while International Power dropped 41/2p to 3231/2p and National Grid fell 9p to 640p.

Outside the top flight, attention was focused on the retail sector after developments involving Currys owner DSG International, Sports World firm Sports Direct International and Millets chain Blacks Leisure.

DSG lifted 1/2p to stand at 351/4p as chief executive John Browett reported encouraging progress on the company's store transformation programme.

It will open another 100 new format stores in the 2010/11 financial year and said those sites that had already benefited from the work were seeing an average gross profits uplift of around 20 per cent.

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Sports Direct shares fell 1 per cent as it revealed it maintained an interest in buying Blacks Leisure, despite the firm's rejection of a provisional approach.

Blacks described the 26m indicative offer as "wholly inadequate" and said it would press ahead with its fundraising plans in a show of defiance to its biggest shareholder.

Sports Direct shares shed 0.7p to 1051/8p, but Blacks shares rose by half a penny to 611/2p.

In a quiet session for corporate results, shares in electrical engineering firm T Clarke rose 6 per cent – up 91/2p to 158p – after it reported a fall in pre-tax profits but said it looked to the future with "cautious optimism".

The biggest Footsie risers were Lloyds Banking Group, Royal Bank of Scotland, and BAE Systems ahead 91/4p to 3853/4p.