London stages rebound as investors hunt for bargains

Banks and miners drove a 2 per cent recovery on the FTSE 100 Index – up 97.40 points to 5038.08 – while positive economic data in the US helped fuel the rally.

In the US, the Dow Jones Industrial Average gained more than 100 points soon after opening, boosted by news that new US homes sales increased to their highest level since May 2008 last month.

Investors were also buoyed by a report showing US demand for 'big ticket' manufactured goods rose 2.9 per cent in April.

Sales of new US single-family homes jumped 14.8 per cent to a 504,000 unit annual rate, from 439,000 units in March, the Commerce Department said. That compared to market expectations of a 430,000 unit pace.

The jump in new home sales last month probably reflected buyers signing contracts to benefit from a popular government tax credit.

In another report, the department said durable goods orders increased 2.9 per cent last month to their highest level since September 2008, boosted by a 228 per cent increase in bookings for aircraft. Markets had forecast overall orders increasing 1.3 per cent.

The day's gains looked to have been fuelled by bargain hunting after falls in the previous session took the Footsie to levels not seen since last September on the back of European debt worries and heightened military tensions in Korea. The bounce back yesterday was being led by a recovery for the mining and banking sectors caught in wednesday's sell-off.

An upbeat note on the bank sector from broker Credit Suisse added to the positive sentiment, with the group declaring that "UK banks are investable and at current levels offer value".

Part-nationalised Lloyds Banking Group lifted 33/8p to 537/8p, followed by Barclays, ahead 131/4p to 297p, and taxpayer-backed Royal Bank of Scotland, up 23/8p to 451/8p. HSBC failed to benefit from the rally as shares dropped 13/4p to 6173/4p.

Among the miners, Kazakhmys led the way with a 77p hike to 1149p, while Lonmin added 100p to 1661p and Rio Tinto lifted 2081/2p to finish the session at 30641/2p.

Business telecoms firm Cable & Wireless Worldwide was another strong riser in London after delivering the first set of figures since its demerger, which met market expectations. The company said market conditions were improving and that its main operations had gained share, triggering a 5 per cent, or 35/8p rise to 791/2p.

Luxury fashion brand Burberry also impressed investors after a 23 per cent rise in full-year profits to 215m exceeded City forecasts, prompting shares to rise 461/2p to 659p.

It also lifted its dividend payout by 17 per cent.

Pub giant Punch Taverns rose 6 per cent in the FTSE 250 Index –up 4.65p to 69.8p – after yesterday's announcement of new boss Ian Dyson's start date. The Marks & Spencer finance chief will take over the top job at Punch on September 6.

Back in the top flight, a number of stocks failed to take part in the wider bounce back as shares were hit by turning ex-dividend, meaning that new investors will not take part in the next shareholder payout.

This saw International Power drop 41/2p to 2841/2p and retail chain Next ease back by 32p to stand at 1983p.

The biggest Footsie risers were Burberry, Rio Tinto, Kazakhmys and Petrofac which closed 731/2p higher at 10751/2p.

The biggest fallers were National Grid down 585/8p to 4973/8p, Next, International Power and Standard Life off 21/4p to 1731/8p.