Barclays and Lloyds stocks drive further gains as Footsie advances 3%

FTSE:5,320.03 (+157.20) Mid-250:10,432.05 (+292.31) Small Cap:2,989.89 (+45.86)

LONDON’S STOCK market rose yesterday as investors eyed Europe’s main indices after the short-selling ban on financial stocks by some of the continent’s regulators.

After early volatility, the FTSE 100 closed up 157.2 points, or 3 per cent, at 5320.03, a rise of 1.4 per cent on the week.

Banks led the index higher as their rivals in Europe climbed following the ban on short selling by regulators in France, Spain, Italy and Belgium. The move was aimed at calming volatility in the financial sector by stopping traders from selling borrowed stock, paying back the loan with stock purchased more cheaply as share prices fall, and profiting by the difference.

Regulators believe that a surge in negative rumours circulating trading floors has been partially responsible for the sharp losses seen by Europe’s financial stocks.

Many analysts, however, believed a ban on short selling was not the answer.

“Bans on short selling in France, Belgium, Italy and Spain come into effect today; that may prop up banking stocks specifically in the near term but the lessons of similar measures imposed in 2008 suggest it will be no more than a temporary fix,” said Ian Williams at Altium Securities in London.

Among London’s banks, Barclays climbed 5.3 per cent to 187.2p. Collins Stewart said that although it was lowering its earnings estimates it retained its “buy” rating on the stock given the recent fall in the share price.

“Trading is more challenging, but not apocalyptic and the share price discounts despair,” the broker said.

Meanwhile, Royal Bank of Scotland gained 4.8 per cent to 26.359p and Lloyds Banking added 5 per cent to 33.81½p.

Insurers were also higher. Standard Life added 5.8 per cent to 202p, while Legal General gained 4.9 per cent to 103.1p.

Kingfisher climbed 5.9 per cent to 236.2p after UBS added the retailer to its “key call” list, assigning a “buy” rating and 310p target price.

Inmarsat was the star FTSE 100 performer, up 9.7 per cent, building on Thursday’s gains when Citigroup upgraded the satellite operator to “buy”.

Trinity Mirror surged almost 18 per cent after the newspaper publisher posted reassuring first-half results. – (Copyright The Financial Times Limited 2011/Reuters)