Investors regain confidence to aid 100-point FTSE rise

Nervous investors regained some confidence today as Government assurances over savings at Northern Rock put banking stocks back in favour.

Crisis-hit Northern Rock recovered 8% as investors tentatively returned to the stock, but Alliance & Leicester regained all of the ground lost yesterday amid the fall out from its Newcastle counterpart.

The banking sector recovery helped the FTSE 100 Index power ahead to close 100.5 points up at 6283.3, a lift of 1.6%.

The Footsie was helped by a strong start on Wall Street ahead of an anticipated cut in US interest rates by the US Federal Reserve later today.

UK financial stocks were also steadied by the Bank of England’s move to inject an extra £4.4 billion into overnight money markets which had seized up again on news of Northern Rock’s woes.

Alliance & Leicester, which had dived 31% yesterday amid market fears over the next bank to suffer in the credit crisis, rallied 193p to 793p.

Northern shares have halved since Friday but were up 23.25p, at 306p, while Halifax Bank of Scotland gained 3%, or 25.5p, to 838.5p. Barclays cheered 26p to 607p.

Two second-tier companies caught up in the market panic over Northern Rock also recovered today. In the FTSE 250, specialist buy-to-let mortgage lender Paragon gained 5%, or 14.25p to 300p after reassuring investors with a positive trading update. Fellow buy-to-let lender Bradford & Bingley, meanwhile was 6% higher, up 16.75p at 297.75p.

Housebuilder Persimmon was less fortunate, extending losses seen yesterday and Friday amid fears over the impact of the Northern Rock situation on property markets. Shares were down 5p at 941p.

Among a diminished list of share fallers, miner Lonmin suffered the most, off 119p at 3170p – a fall of nearly 4% – after Credit Suisse lowered earnings forecasts following last month’s strike, which the broker said could affect production.

Pubs chain Mitchells & Butlers was also on the back foot, down 4p at 585.5p as brokers downgraded the stock following yesterday’s news that liabilities from a shelved property deal had more than doubled to £140 million.

On the corporate front, Debenhams shares declined 4% as investors remained worried about prospects, despite a steady trading update from the department store chain. It said profits and sales were in line with expectations, but warned of a challenging trading environment in the short-term. The stock was 4p lower at 101.5p.

Other retailers were dogged by investor uncertainty, with Marks & Spencer off 4p at 570.5p.

Travel stocks also suffered with FTSE 250 firm easyJet off 16p at 512p, a drop of 3%. Fellow second tier group Tui Travel followed suit with a fall of 7.5p to 251.75p. British Airways bucked the trend after earlier losses to stand 6.5p higher at 376p.

The biggest Footsie risers were Alliance & Leicester up 193p at 793p, Northern Rock ahead 23.25p at 306p, Liberty International up 53p at 1100p and Barclays up 26p at 607p.

The biggest Footsie fallers were Lonmin down 119p at 3170p, Marks & Spencer off 4p at 570.5p, Mitchells & Butlers down 4p at 585.5p and Persimmon off 5p at 941p.