FTSE stages spectacular bounceback

Banks jumped by as much as 16% today as investors piled back into shares following the deal to stop the Greek debt crisis from spreading.

The FTSE 100 Index, which fell 2.6% on Friday and by more than 7% over the week as a whole, recovered in spectacular fashion, adding 5.2% or 264.4 points to 5387.4. This was the top flight’s best session since December 2008.

The relief rally was matched on Wall Street, where the Dow Jones Industrial Average stood 4% higher at the time of London’s close. There were even bigger gains in Europe as France’s CAC 40 soared by 9%.

The €750bn bailout package to prop up the single currency, backed by the eurozone nations and the International Monetary Fund, boosted confidence shattered by the Greek debt crisis and pushed markets higher.

Meanwhile, talks between Conservatives and Liberal Democrats over a possible coalition had earlier helped settle nerves following the hung Parliament, with both sides committed to tackling the deficit. The stock market had closed by the time it emerged that Nick Clegg had also requested formal talks with Prime Minister Gordon Brown.

After being hit by a major sell-off last week, the euro climbed to almost 1.31 against the dollar before easing back. Sterling was above 1.15 against the single currency after peaking at 1.17 during a volatile session.

Elsewhere, the Bank of England’s decision to maintain interest rates at a record low of 0.5% came as little surprise to markets.

Stocks hit hardest by fears over their exposure to debt-laden Mediterranean countries benefited from the market rebound.

The three biggest risers of the session were from the banking sector, with Barclays up 16% or 45.9p to 329.6p, closely followed by Lloyds Banking Group and Royal Bank of Scotland, with gains of 14%. Lloyds was up 7.5p to 61p and RBS cheered 6.25p to 51.75p.

Heavyweight mining firms also underpinned the advance, helped by deal-making in the sector. Kazakhmys was one of the best performers, up 128p to 1325p, while Vedanta Resources added 235p to 2551p.

BP was one of only two blue-chip fallers, dropping 4.7p at 549.2p after it said the total costs of its Gulf of Mexico oil spill so far was $350m (€280m).

British Airways shares were 6% higher despite the Unite union announcing a series of five-day strikes in a bitter row over jobs, pay and conditions.

The upbeat mood was shared in the FTSE 250 Index, which rallied 5% after suffering a slump on Friday afternoon.

The biggest Footsie risers were Barclays up 45.9p to 329.6p, Lloyds Banking Group ahead 7.5p to 61p, Royal Bank of Scotland up 6.25p to 51.75p and Aviva ahead 35.6p to 339p.

The biggest fallers were Randgold Resources down 55p at 5580p and BP off 4.7p at 549.2p.