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Britain's High Street lenders are back on the shopping lists of stock-market investors despite the public's low opinion of bankers at present.
State-owned Royal Bank of Scotland led the way with a rise of 4.8p to 37.5p as it moved to claw back some of yesterday's losses, linked to the needs of Bank of America and Citigroup to raise more funds after failing to pass the early stage of a Federal Reserve stress test.
Lloyds Banking Group added 6.8p at 102.4p, while Barclays rose 17p to 249¼p and Standard Chartered put on 63½p at 993p.
The broking arm of HSBC has raised both Barclays and Lloyds from neutral to overweight, while repeating its overweight rating for RBS. It says the rally during the past few weeks has been about a return to certainty rather than the macroeconomic outlook.
In the case of Barclays, this certainty comes from the bank's forecast of impairments at between 130 and 150 basis points. For Lloyds and RBS it is due to the asset-protection scheme.
HSBC has jacked up its target for Barclays from 110p to 300p, Lloyds from 40p to 150p and RBS from 30p to 50p.
In a separate move, Morgan Stanley has reduced its 2009 loss-per-share forecast for RBS from 11p to 8p, and for next year from 9p to 8p. It attributes the move to better-than-expected industry revenues and a gain on debt repurchases.
MS has also raised its target for Standard Chartered from 655p to 700p, but slashed its earnings forecast for 2009 by 20% and for next year by 50%.
Sentiment in the sector was also boosted by numbers out from Abbey, the UK's second-biggest mortgage lender, which revealed a significant drop in provisions for bad debts.
Investors generally succeeded in steadying the ship following the swine flu sell-off of the past few days. The FTSE 100 index sported a rise of 70.28 at 4166.68, although the best gains were seen among second-liners, where stock shortages tend to exaggerate movements. The FTSE 250 index was 177 higher at 7332.2.
Wall Street rallied strongly ahead of tonight's meeting of the Federal Reserve Open Market Committee (FOMC), the Dow rising 114.3 points to 8131.3. Interest rates are now bordering on zero in the US, leaving little scope for manoeuvre, but traders are hopeful the FOMC will find ways to inject more money into the financial system, thereby supporting the “green-shoots recovery”.
The US economy shrank a bigger-than-expected 6.1% in the first quarter — its largest fall since 1958. Goldman Sachs expects equities to provide the best return over the next 12 months as improving economic news reduces uncertainty.
London stocks that had been sold off earlier this week on the fallout from swine flu showed signs of clawing back losses. British Airways rallied 5.5p to 148.6p while InterContinental Hotels climbed back 20p at 652½p.
Marks & Spencer was up 10¼p to 339¾p. Chairman Stuart Rose says the retailer has seen more stability coming into the markets, though he would not say it's the green shoots of recovery.
Xstrata, up 14½p at 578p, remains best pick out of the top four diversified miners for UBS, but it has raised Anglo American, up 73p at 1415p, to third place above BHP Billiton, 7p better at 1366p.
There is also talk that BHP may reopen talks with former bid target Rio Tinto about a friendly merger, if Rio's talks with its biggest shareholder Chinalco about refinancing falter.
Debenhams, 7¼p higher at 90¾p, continues to receive plaudits from the City after its recent performance. MS says the shares could be worth up to 160p should a rights issue prove unnecessary.
But at the last count, the department-stores operator had debts of around £950 million, and its decision not to pay a dividend will only make a small dent.
MS has raised its rating on the shares from equalweight to overweight and says the shares are still worth 110p even if the group proceeds with a rights issue.
SSL International responded to some bullish comments from UBS with a rise of 22¾p to 473p.
