Relief over unprecedented bank rescue plans across the UK and Europe sparked a near-4% rally on London’s blue-chip share index today.
The FTSE 100 Index gained 3% or 139 points to 4071 in the rebound, settling back from an earlier rise of almost 7% seen as investors cheered the moves.
Last week’s bloodbath saw the FTSE fall nearly 9% on Friday at the end of the market’s worst week since the 1987 crash.
Indices across Europe also recovered some lost ground today after nations agreed a raft of emergency measures designed to ease the credit crunch.
France’s CAC 40 rose 4.6%, while the DAX in Germany raced 7% ahead.
Countries which use the euro agreed yesterday to temporarily guarantee bank refinancing and pledged to prevent banks from failing.
In London, investors were digesting details of the British government’s £37bn (€47.12bn) bail-out package for three of the UK’s biggest banking groups.
There was a mixed reaction for banking stocks, with those seeking state backing - Royal Bank of Scotland, HBOS and its merger partner Lloyds TSB – heavily down as the implications became clearer.
There had been speculation that bank shares could be suspended to give the City time to examine the rescue plan. No such move was implemented, despite traders facing a number of announcements from the banks and the Treasury between 7am and 7.45am.
HBOS plunged 22% lower after the terms of its Lloyds takeover were revised, with investors now receiving 0.605 Lloyds shares for every share they hold, rather than the 0.803 announced in September.
Lloyds – which together with HBOS is raising £17bn (€21.65bn) from the government - fell 6%, while RBS surrendered a positive start to stand 9% lower as investor concern mounted over dilution of existing shares.
RBS is raising £20bn (€25.47bn) in additional capital, which would see the government stand to own a 60% stake in the company if the bank fails to sell any shares to outside investors.
Investors were also told that no dividends will be paid while the government holds preference shares in the company.
Shares in Barclays, which plans to raise £6.5bn (€8.28bn) without the need for government support, gained 6% and HSBC, also boosting capital without state support, rose 7% today.