IMF's global upgrade keeps Footsie in positive territory

Despite a downgrade for the UK's prospects, the Washington-based body forecasts world growth of 4.5 per cent this year, up from 4.1 per cent in April.

The top flight consolidated Wednesday's rise above the 5000 barrier, cheering a further 90.63 points to 5105.45 as investors rediscovered their risk appetite.

On Wall Street, the Dow Jones Industrial Average was higher after a sharper than expected fall in initial jobless claims in the US last week.

Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 454,000, the lowest level since early May, the Labor Department said. It added the number of people continuing to receive benefits in the final week of June was the lowest in seven months.

Analysts polled by Reuters had expected claims to fall to 460,000. A raft of weak reports on consumer spending, the housing market and factory activity had left investors worried the economy could slip back into recession.

"I think we are too quick in dismissing the potential for growth in the second half of the year, I don't think it is going to be as weak as earlier thoughts had it," said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York.

Banks rose after the growth forecasts and hopes that a Europe-wide stress test of major players in the sector will represent the next step in restoring confidence following the financial crisis.

Improved certainty over the eurozone was good for the single currency, which strengthened to 1.19 against sterling. The pound also lost ground against the dollar at 1.51.

Shares in the financial sector were also helped by news of a new venture from City grandees Lord Levene and Sir David Walker which aims to bid for taxpayer-backed assets.

The corporate heavyweights are planning to list an acquisition vehicle on the stock market.

Part-nationalised Lloyds Banking Group and Royal Bank of Scotland were beneficiaries, with shares gaining 21/2p to 603/4p and 11/2p to 443/8p respectively.

Barclays added 103/8p to 302p.

Temporary power firm Aggreko took top spot after HSBC brokers started coverage with a buy rating and talk of bid interest did the rounds. Shares rose 83p to 1545p.

Going the other way was supermarket Sainsbury's, which fell 31/4p to stand at 341p as rumours of Qatari interest in a takeover cooled.

In the FTSE 250, recruitment firm Hays was a strong performer after its first year-on-year growth in net fees for two years. The improvement, which drove shares 45/8p higher to 951/8p, came despite a slump in public sector demand in the UK.

But embattled social housing firm Connaught was suffering in the second tier after it announced changes at the top.

The group said Mark Tincknell will relinquish his role as chief executive with immediate effect to recover from his recent health issues, while Stephen Hill has also decided to step down as finance director at the end of October.

Connaught, which has seen its share price slump by almost two thirds in the past two weeks after warning over the impact of the Budget, fell 67/8p to 1111/8p.

Elsewhere, retailer JJB Sports was up 1p to 14p after it revealed that sales soared 22.3 per cent in the six weeks to July 4.

The biggest Footsie risers were Aggreko, Lloyds, Royal Dutch Shell up 64p to 1667p and Legal & General ahead 3p to 837/8p.

The biggest Footsie faller of the session was Essar Energy down 57/8p

to close at 4483/8p.