Britain's top share index closed higher on Monday as banking stocks recovered on a US plan to rescue ailing mortgage finance companies while Kazakhmys lifted the mining sector after it said it was in merger talks. Banks also gained after Spain's Santander said it had reached a deal to buy Alliance & Leicester, sending the British midcap soaring more than 50 percent.
The commodity-heavy FTSE 100 closed up 38.8 points, or 0.7 percent, at 5,300.4, paring gains after rising as much as 2.1 percent in the session. The index had fallen 2.7 percent on Friday to its lowest closing level in nearly three years. Sentiment in the banking sector slightly improved after a US government plan, announced on Sunday, to shore up mortgage finance firms Fannie Mae and Freddie Mac.
The plan called for sweeping measures to lend money and buy equity if necessary in the government-sponsored enterprises, which own or guarantee $5 trillion in debt - close to half the value of all US mortgages. "They are pretty positive measures and we could see some support for the banks and the downward move starting to slow down as well," said Manoj Ladwa, a derivatives trader at TradIndex, referring to the US government's plan.
"But what concerns investors primarily is that there could be more in the way of writedowns. I don't think (the FTSE's rise) is sustainable. We are in a bear market and this seems to be one of those rallies you typically see within a downward trend."
Standard Chartered, Barclays, Lloyds TSB and HBOS rose 0.8 to 2.8 percent, while recently battered Bradford & Bingley jumped 12 percent, helped by the Alliance & Leicester deal. But Fannie and Freddie pared gains in New York towards the close of UK trading.
"Much of the positive momentum already seems to be ebbing with many on Wall Street looking at the Fed's move with a degree of cynicism on the basis that it's nothing more than an open admission that the credit crisis is still with us," Jimmy Yates, a dealer at CMC Markets, said in a note. The FTSE has fallen 18 percent this year after gaining an average of 10 percent every year for the last five years.
Kazakh copper producer Kazakhmys rose 6.2 percent after the miner said it was in preliminary talks about a possible merger. Sources said Russia's Metalloinvest was holding talks to merge with Kazakhmys. The merger news supported other miners, with European Natural Resources rising 8 percent, BHP Billiton gaining 3.1 percent, Anglo American adding 2.8 percent and Vedanta Resources rising 2.6 percent.
ITV jumped 12 percent to top the FTSE 100 gainers after a source familiar with the matter said Executive Chairman Michael Grade had been approached by parties interested in BSkyB's stake in the British free-to-air broadcaster. Satellite group BSkyB owns 17.9 percent of ITV and is currently challenging a ruling by the Competition Commission that it has to reduce that to below 7.5 percent.
Further on the upside, shares in Diageo and SABMiller rose between 1.5 and 3 percent after US brewer Anheuser-Busch accepted a sweetened $52 billion takeover bid from Belgium-based InBev to create the world's largest beer maker. But oil and energy stocks tracked softer crude prices, with Royal Dutch Shell, gas producer BG Group, Cairn Energy and Tullow Oil shedding between 0.3 and 2.1 percent.
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