Northern Rock drives on FTSE

Banking stocks enjoyed a welcome rebound today after renewed hopes of a bid for crisis-hit Northern Rock lifted sentiment in the sector.

The beleaguered mortgage lender lifted almost 12%, or 18.9p to 182p after the group said after markets closed yesterday that it was in talks regarding a “variety of transactions”, including a possible takeover.

The FTSE 100 Index closed 36.1 points up at 6433 after a firm set of GDP figures pointed to a healthy UK economy and a bullish opening on Wall Street buoyed trading.

Fellow lenders gained advances on Northern’s hints of a possible deal, amid news that the Bank of England’s offer of £10bn in funding had not been taken up by banks.

Fellow mortgage lender Alliance & Leicester gained 24p to 733p on Northern’s news, while FTSE 250 counterpart Bradford & Bingley rose 12.25p to 291.25p.

Halifax Bank of Scotland was 42.5p ahead at 873p after analysts at Goldman Sachs said the firm was a likely winner from rising mortgage margins.

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ther banks on the front foot included Royal Bank of Scotland up 6.5p at 516.5p, Lloyds TSB, 4.5p ahead at 536p, and HSBC, which gained 5p to 914p.

Elsewhere in the top flight, industrial conglomerate Smiths Group lifted 3% after announcing the departure of its long-serving chief executive Keith Butler-Wheelhouse.

Traders speculated that his successor could look at a break-up of the company, sending the shares 32p higher at 1095p.

But housebuilders lost some of their early advances after Barratt Developments produced full-year figures.

Initial relief that the results were in line with expectations bumped the shares 25p higher, but Barratt failed to hold on to gains as investors digested comments over the effect of Northern Rock’s woes.

Shares closed unchanged at 726p after Barratt revealed sales were down between 5% and 10% in the week after the revelation the bank had called on the Bank of England for emergency funding.

Sector peers Taylor Wimpey – up 2.5p to 258p, and Persimmon, up 17p to 910p - also eased back from larger gains seen earlier in the session.

The leading Footsie faller was Currys owner DSG International, which fell 5p to 129.9p on a downgrade from Credit Suisse and a 20% fall in first-half profits from FTSE 250 retailer Kesa Electricals.

Comet retailer Kesa was off more than 5%, or 15.25p, at 261p.

Back in the top flight, oil major BP continued yesterday’s losses after chief executive Tony Hayward warned of a “dreadful” operational performance in the third quarter. BP was 5.5p down at 567p.

Fellow oil firm Tullow Oil, recently promoted to the leading index, pulled back from losses earlier in the week following a broker upgrade from Deutsche Bank. The stock rose 20p to 596.5p after Deutsche highlighted the benefits of its broad portfolio.

The biggest Footsie risers were Northern Rock up 18.9p at 182p, Invesco ahead 35p at 666p, HBOS up 42.5p at 873p and Icap ahead 21.75p at 518.5p.

The biggest Footsie fallers were DSG International off 5p at 129.9p, Carphone Warehouse down 7.5p at 350.25p, Experian off 11p at 515p and Xstrata down 46p at 3149p.