Britain's leading share index ended 2.3 percent higher on Wednesday, driven by banks on strong results from Spain's Santander and bullish broker notes, while firmer raw material prices helped commodity stocks.
The FTSE 100 closed up 93.19 points at 4,189.59, its highest closing level since February 13 and shrugging off a steeper-than-expected US economic decline in the first quarter of 2009. The UK index lost 1.7 percent on Tuesday, and is down 5.5 percent this year after sliding more than 31 percent in 2008.
Banks rebounded strongly after falls on Tuesday triggered by worries that possible fresh capital raisings could still be required by major banks when the US government's stress tests are revealed next month. Santander's above-forecast results boosted sentiment, particularly the bank's British arm, which includes Abbey and which reported a 31 percent rise in first-quarter profit.
The banking sector was also helped by an upbeat note from HSBC which raised ratings for Barclays and Lloyds Banking Group, and increased its price target for Royal Bank of Scotland. Morgan Stanley also raised its forecast for RBS, whose shares soared 12.5 percent. Barclays surged 10.4 percent, Lloyds rose 8.3 percent, Standard Chartered advanced 7.5 percent and HSBC put on 1.8 percent. "There seems to be a degree of support on the index at around the 4,000 level and investors' appetite for risk seems to be returning with a degree," said Tim Whitehead, head of portfolio services at Redmayne-Bentley.
"It remains to be seen whether this is a premature rally and whether we will see some profit taking in the next quarter. For now, I am reasonably heartened by the market's ability to absorb news and to cope with it." In the United States, the economy contracted at a surprisingly sharp 6.1 percent rate in the first quarter as exports and business inventories plummeted.
The Federal Reserve rate decision, meanwhile, is due at 1815 GMT although no changes are expected with rates already at rock bottom. Insurers also rallied as equity market valuations rebounded with Aviva, Prudential, Old Mutual and Standard Life rising between 3.3 and 7.2 percent.
Miners were other standout gainers, rising on the back of stronger metal prices following recent weakness as fears abated over the impact of a swine flu on global demand. Rio Tinto, Anglo American, Xstrata, Vedanta, Kazakhmys and Lonmin added between 4.1 and 7.5 percent. British Airways bounced 3.8 percent as airlines recovered after being hit hard earlier this week by the outbreak of swine flu in Mexico..
Cruise operator Carnival also rose 4.4 percent. Oil producers were also firmer, driven by firmer crude prices and better-than-expected first-quarter results from Royal Dutch Shell. Royal Dutch Shell put on 1.7 percent, while BG Group, BP and Tullow Oil strengthened 1.2 to 4 percent. Home Retail Group shed 2.3 percent to top the losers' list after the retailer posted a 24 percent drop in underlying full-year profit and said trading conditions would stay tough.
Elsewhere in the retail sector, Tesco fell 1.4 percent after data released late on Tuesday showed the grocer losing market share. The stock also traded ex-dividend. Sainsbury was the fastest growing of the big four supermarkets over Easter, market researchers Nielsen said. Sainsbury shares were up 2.2 percent.