Banking sector surge lifts London market into black

The London market posted gains of 2.6 per cent or 139.09 points to close at 5397.11, while Wall Street's Dow Jones Industrial Average rose two per cent after a 12th successive month of growth for manufacturers in the United States.

Banks were joined on the risers by many commodity-related stocks as crude oil pushed past $80 a barrel on revitalised recovery hopes.

The pound pushed to six-month highs against the dollar at 1.59, and approached 1.21 against the euro.

HSBC was the Footsie's best performing bank after lower levels of bad debts enabled it to announce higher half-year profits of $11bn (7bn).

It followed the lead of its French counterpart, which earlier reported second quarter earnings of 2.1bn euros (1.7bn), a rise of 31 per cent.

Despite the impact on revenue growth of recent stock market turbulence, shares in HSBC lifted five per cent or 34p to 680p.

HSBC group chief executive, Michael Geoghegan said the banking sector and regulators had a "responsibility" to take the next steps to free the flow of credit and support the wider economy.

He added: "With regulatory change ahead, capital and funding strength will become even more important in deciding which banks can grow and which are left behind. Maintaining our strong balance sheet therefore remains core to our banking philosophy."

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "Today's numbers underline the overall strength of the bank, whilst the dramatic reduction in the loan impairment provision is an additional bonus."

Lloyds Banking Group lifted 3.18p to 72.44p ahead of its results tomorrow, which are expected to show 800m in profits in a mammoth turnaround on the 4bn losses a year earlier.

Barclays added 11.15p to 343.95p and Royal Bank of Scotland lifted 2.14p to 52.10p as investors prepared for a total profits haul from the sector of more than 10bn in the first six months of the year.

Miners were also higher after weaker Chinese manufacturing data quelled fears Beijing might tighten controls to prevent its economy from overheating.

This encouraged the likes of Vedanta Resources to rise 127p to 2568p and Antofagasta to add 49p to 1037p.

Other notable risers included property firm Hammerson after it posted a seven per cent improvement in adjusted pre-tax profits for the six months to June 30.

It also became the first real estate investment trust to raise its dividend since the downturn in property markets, helping its shares to improve 10.3p to stand at 398.7p, a rise of two per cent.

Quality checking firm Intertek was among the best performers after it upped its full-year forecasts and said it expects to achieve organic revenues growth of mid-single digits this year. Shares responded with a six per cent rise, up 97p to 1674p.

Outside the top flight, shares in Arena Leisure were down almost seven per cent after the racecourse operator highlighted concerns about a sharp reduction in the bookmakers' levy used to support the racing industry.

Arena has already warned its profits in 2011 were likely to be 800,000 lower. Half-year underlying profits rose 25 per cent to 2m, but this failed to prevent shares falling 21/2p to 341/2p.

The biggest Footsie risers were Petrofac up 78p to 1328p and Intertek ahead 97p at 1674p.