Britain's leading share index rose 0.6 percent on Friday to snap a seven-day losing run, as gains in commodity stocks offset gloom in banks, with Barclays being hit hard. The FTSE 100 closed 25.95 points higher at 4,147.06, after trading to a high of 4,251.68 during the session, as banking shares gave up earlier gains and slipped into negative territory in late trading.
The UK benchmark is down 6.5 percent this month after losing more than 31 percent last year - its worst annual drop since its launch in 1984. Barclays led the banking sector lower, slumping nearly 25 percent. Royal Bank of Scotland lost 13 percent and Lloyds TSB sagged almost 5 percent. Sterling pared gains against the dollar as Barclays tumbled amid worries about its capital and outlook.
"Once you have seen what happened to Bank of America, what happened to Citigroup and the fact that the market has perceived that HSBC could probably need another $30 billion of capital, there is no way in current climate that Barclays can ... stand alone," said David Buik, strategist at BGC Partners. The UK government's ban on short selling of 34 major financial stocks expired at midnight.
Citigroup unveiled plans to split in two and shed troubled assets, which investors hoped would help revive the company, and reported a quarterly loss of $8.29 billion. Bank of America, just hours after winning a multibillion-dollar lifeline from Washington to help absorb Merrill Lynch, posted its first quarterly loss in 17 years and slashed its dividend.
HSBC also remained under pressure, down 2.2 percent on persistent concerns of a rights issue and dividend cut to shore up its capital base. Fitch Ratings on Friday revised its outlook on HSBC's AA rating to negative from stable. A Treasury source said new British government measures to boost bank lending could come as early as next week, and a state guarantee to get credit moving again could feature high on the agenda.
Bank of England Deputy Governor John Gieves said this year will be very difficult for the global economy, and the authorities in Britain and overseas needed to consider further monetary and fiscal action. Meanwhile, Ireland's government nationalised Anglo Irish Bank late on Thursday in a step to prevent a possible collapse that could have undermined the sector and crippled the country's finance.
Oil producers, however, were the top-weighted gainers on the index, as crude prices firmed. Heavyweight BP advanced 1.5 percent, Royal Dutch Shell put on 1.6 percent and BG Group climbed 4.8 percent. Mining shares were among other big gainers as metal prices gained. Anglo American, BHP Billiton, Rio Tinto, Xstrata, Vedanta Resources, Eurasian Natural Resources and Antofagasta added between 5.6 and 8.7 percent.
Vodafone rose 2.2 percent after Citigroup lifted its price target on the mobile phone operator. Investec said in a note that it expected 2009 would be a better year for equity investors than 2008, with a target for the FTSE 100 at 4,800. "While anticipating protracted lending and economic difficulties, we believe that investors have already factored in a very hard landing," it said.