Banking sector surge lifts London market into black

The FTSE 100 Index, which fell 2.6 per cent on Friday and by more than seven per cent over the week as a whole, recovered in spectacular fashion, adding 5.2 per cent or 264.40 points to 5387.42. This was the top flight's best session since December 2008.

The relief rally was matched on Wall Street, where the Dow Jones Industrial Average stood four per cent higher at the time of London's close. There were even bigger gains in Europe as France's CAC 40 soared by nine per cent.

The 750bn euro (650bn) bailout package to prop up the single currency, backed by the eurozone nations and the International Monetary Fund, boosted confidence shattered by the Greek debt crisis and pushed markets higher.

Meanwhile, talks between Conservatives and Liberal Democrats over a possible coalition had earlier helped settle nerves following the hung Parliament, with both sides committed to tackling the deficit.

The stock market had closed by the time it emerged that Nick Clegg had also requested formal talks with Prime Minister Gordon Brown.

After being hit by a major sell-off last week, the euro climbed to almost 1.31 against the dollar before easing back. Sterling was above 1.15 against the single currency after peaking at 1.17 during a volatile session.

In the United States, banks ranked among the top beneficiaries as the rescue deal reduced fears of a possible default.

"The market is telling us that this was the right move," said Marc Pado, US market strategist at Cantor Fitzgerald in San Francisco.

"The size of the bullet that we dodged here is huge."

Analysts cautioned, however, that longer-term concerns remained over whether euro-zone nations saddled with high debt loads would be able to manage their balance sheets.

Elsewhere, the Bank of England's decision to maintain interest rates at a record low of 0.5 per cent came as little surprise to markets.

Stocks hit hardest by fears over their exposure to debt-laden Mediterranean countries benefited from the market rebound.

The three biggest risers of the session were from the banking sector, with Barclays up 16 per cent or 457/8p to 3295/8p, closely followed by Lloyds Banking Group and Royal Bank of Scotland, with gains of 14 per cent. Lloyds was up 71/2p to 61p and RBS cheered 61/4p to close at 513/4p.

Heavyweight mining firms also underpinned the advance, helped by deal-making in the sector. Kazakhmys was one of the best performers, up 128p to 1325p, while Vedanta Resources added 235p to 2551p.

BP was one of only two blue-chip fallers, dropping 43/4p to stand at 5491/4p after it said the total costs of its Gulf of Mexico oil spill so far was $350m (234m).

British Airways shares were six per cent higher despite the Unite union announcing a series of five-day strikes in a bitter row over jobs, pay and conditions.

The upbeat mood was shared in the FTSE 250 Index, which rallied five per cent after suffering a slump on Friday afternoon.

One of the biggest moves in the second tier came from Enterprise Inns amid speculation that it is close to unveiling a long-awaited refinancing of its 1bn bank loan, allaying fears of a shareholder bail-out.

Shares were 13 per cent higher, up 145/8p to 1221/8p, ahead of the company's interim results today.

The biggest Footsie risers were Barclays, Lloyds Banking Group and Royal Bank of Scotland.