Financials drive rally with RBS and Lloyds stocks gaining more than 6%

FTSE: 5,532.92 (+88.10) Mid-250: 10,389.30 (+201.86) Small Cap: 2,801.00 (+13.09)A LATE bank rally helped Britain's top share index end a torrid week on a stronger note yesterday after Italy's approval of austerity measures lifted risk appetite and fund managers argued the stock market gains have got further to run.

The measures, demanded by the European Union, will now go to the Italian lower house, where it is expected to be approved tomorrow.

Italian bond yields fell.

The news gave battered UK banks and insurers a shot in the arm.

Investors sought value at low levels, with Royal Bank of Scotland and Lloyds Banking towards the top of the leader board, both up more than 6 per cent.

Schroders was the top riser, gaining 6.8 per cent to 1,393p, as Deutsche Bank upgraded the fund management group to “hold” from “sell”, saying the harsher climate is now priced in, and pointing to Thursday’s third-quarter profit-beating forecasts.

British Airways and Iberia owner IAG also notched up solid gains, up 4.9 per cent to 148.7p, after raising growth and cost savings targets and saying it expected an operating profit of about €1.5 billion in 2015, which broker Davy said was a positive for the company.

“The risk of political mistakes in handling the euro zone debt crisis creates volatility from day to day and the possibility of a very adverse episode for markets if European leaders allow the contagious collapse in confidence in European sovereign credit to spin out of control,” Andrew Bell, chief executive of the £1.1 billion Witan Investment Trust, said.

Rolls-Royce, which makes engines for the Airbus A380 super jumbo and the eurofighter jet, rose 4 per cent to 738p after saying it expects “good growth in underlying profit and a modest cash flow” in 2011.

BAE Systems, Europe’s largest defence company, rose 3.8 per cent to 283.3p.

Anglo American advanced 3.5 per cent to 2,467p.

The FTSE 100 closed up 100.56 points, or 1.9 per cent, at 5,545.38, although up only 0.3 per cent on the week.

Volumes on the index were thin, at only 74 per cent of the 90-day daily average, as investors hold fire until further evidence emerges that euro zone debt problems are being resolved. – (Bloomberg/Reuters)