Barclays rally brings FTSE up

Barclays shares jumped 72% today after the bank took unprecedented steps to reassure investors that it remained well-funded and profitable.

An open letter from chief executive John Varley and chairman Marcus Agius told investors that Barclays was on track to exceed 2008 market forecasts of £5.3bn (€5.6bn) and said the bank had no need for government assistance.

The spectacular rally by Barclays ended nine days of losses and left its shares up 37.5p to 88.7p by the close. With other banks joining the rally, the FTSE 100 Index finished the session 3.9% or 156.5 points higher at 4209.

Lloyds Banking Group was 32% or 15.9p higher at 65.2p, while Royal Bank of Scotland rose 20% or 2.4p to 14.5p and HSBC lifted 25.5p to 541p.

Insurers also settled after a turbulent few days, with Aviva up 37.25p at 301.25p and Prudential 29.75p stronger at 318.25p. Friends Provident, which is due to issue a full-year sales update on Tuesday, was up 3.7p to 73.4p after F&C Asset Management, in which Friends still has a 52% stake, reported that assets under management rose 5.7% in the fourth quarter. F&C was up 4.75p to 73.75p.

Building supplies group Wolseley fell almost 30% after it warned of a rise in net debt to £3bn (€3.17bn) because of currency movements and said trading profits for the five months to December 31 were down by two-thirds.

With investors fearful that Wolseley could breach banking covenants, shares fell 85p to 201p.

Wickes owner Travis Perkins felt a chill from the update as it dropped 18.5p to 291.25p in the FTSE 250 Index, while building supplies firm BSS fell 5p to 251p and insulation specialist SIG tumbled 12.5p to 116p.

British Airways shares were also driven lower by currency worries after the airline warned it expected operating losses of £150m (€158m) for the 2008/09 financial year.

It had previously forecast a small profit for the period, but this will no longer be the case due to the impact of the weak pound on aircraft leasing costs, which are in dollars.

Shares tumbled 8% or 12.4p to 133.8p.

Sub-prime lender Cattles led the FTSE 250 fallers board – down 28% or 5p to 13p - after it said it had withdrawn its application for permission to take retail deposits. It blamed current market conditions and uncertainty caused by the ongoing reorganisation of its banking facilities.

Meanwhile, fund manager Henderson’s confirmation that it is in talks about a possible offer for New Star Asset Management helped lift shares by 13p to 63.5p. Reports at the weekend said Henderson had exclusive negotiating rights with a view to securing a deal.

The biggest Footsie risers were Barclays up 37.5p at 88.7p, Lloyds Banking Group ahead 15.9p at 65.2p, Royal Bank of Scotland up 2.4p at 14.5p and Aviva ahead 37.25p at 301.25p.

The biggest fallers were Wolseley down 85p at 201p, British Airways off 12.4p at 133.8p, London Stock Exchange down 26p at 480p and Balfour Beatty off 8.25p at 342p.