The top share index soared 7.8% by midday on Friday to snap a four-day losing run, as banks rebounded sharply on a radical US government plan aimed at tackling the crisis besieging financial markets.
By 11:46 a.m., the FTSE 100 was up 379.7 points at 5,259.7, on track for its biggest one-day percentage gain since October 21 1987, when it closed up 7.89%. A temporary ban by financial regulators on short-selling of 29 financial stocks also boosted the FTSE 100, which had fallen nearly 10% from Monday to Thursday.
Battered banks bounced sharply, tracking gains in the US and Asian markets, with the FTSE 350 bank index soaring 22%. Barclays, HSBC, Royal Bank of Scotland, Lloyds TSB, HBOS and Standard Chartered leapt between 12.6 and 40.5%.
Wall Street on Thursday posted its biggest one-day percentage gain since October 2002 -- when the last bull market was born -- after a congressional aide said US Treasury Secretary Henry Paulson has been circulating a proposal to lawmakers that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system. The idea has been compared to the Resolution Trust Corp formed in 1989 to fix the savings and loan industry collapse.
“So far policymakers have dealt with it on a piece by piece basis and they have not got ahead of the curve. This is capable of getting them ahead of the curve. This is very good news,” said Neil Dwane, chief investment officer in Europe for RCM.
In the UK, the Financial Services Authority imposed a temporary ban on short-selling financial stocks until January 16 2009. “At the end of the day, it’s going to be a good thing if speculation is put to bed because it’s not very good for the market or the economy to have this false situation,” said Paul Mumford, senior fund manager at Cavendish Asset Management. However, he said there would be gyrations in the market in the near-term because positions were being unwound by short-sellers.
NO SHORTS ALLOWED
Broker Daniel Stewart said in a note the FSA decision would hurt spreadbetting companies, the London Stock Exchange and interdealer brokers. LSE shares were up nearly 14%, while ICAP, the world’s biggest interdealer broker, jumped 17.4% and mid-cap spreadbetter IG Group put on 5.5%. The Securities and Exchange Commission said short selling of 799 financial stocks is to be halted in the United States under an emergency order aimed at protecting investors and markets.
Insurers also registered strong gains, with Prudential, Old Mutual, Standard Life, Admiral Group and Aviva rising 11.3 to 26.8%, while hedge fund Man Group gained 6.2%.
Energy stocks rose along with higher crude prices. BP, Royal Dutch Shell, gas producer BG Group, Cairn Energy and Tullow Oil were up between 2.5 and 12.9%. In the mining sector, BHP Billiton, Rio Tinto, Anglo American, Xstrata, Vedanta Resources and Antofagasta gained 10 to 16% as precious metal prices stayed firm.
Retailers and property shares were also in demand as sentiment improved. Marks & Spencer, Next, Hammerson, Land Securities, British Land and Kingfisher surged 5.5 to 12%. (Reuters)