London rallies as banks turn higher

Shares in London turned higher by midday on Tuesday after a volatile morning’s trade as US stock futures pointed to opening gains on Wall Street.

After Monday’s 2.7 per cent sell-off, the blue-chip FTSE 100 rose 0.9 per cent to 6,175.2, while the mid-cap FTSE 250 fell 0.4 per cent to 10,449.1.

There was some relief for the bank sector as Alliance & Leicester reversed early losses to gain 3.5 per cent to 602p and Barclays climbed 6.2 per cent to 521.5p.

Northern Rock woes continued, however, slumping below 100p a share despite hopes of government aid in finding a buyer for the ill-fated lender. Rock shares fell a further 12.7 per cent to 90.7p.

Paragon, the FTSE 250-listed lender which specialises in financing buy-to-let mortgages, fell as much as 50 per cent as it faced a financing crunch of its own. The company scrapped its dividend payment and said it would launch a rights issue to raise £280m if other sources of funding remained unavailable before the end of February. Its shares were down 81½p or 39.8 per cent at 123p by mid-morning.

The interbank rate has risen to two month highs in recent sessions. On Monday the three-month interbank sterling rate hit 6.44 per cent, up from 6.39 per cent on Friday.

ICAP, the world’s biggest inter-dealer brokerage, gained 4.7 per cent to 598½p after reporting a better-than-expected 34 per cent rise in first-half underlying profit.

Rolls Royce, the aerospace group, climbed 3 per cent to 519p after announcing plans to expand its aero-engine facilities with new plants in Singapore and the US.

Pub operator Enterprise Inns reversed early gains to trade 2.4 per cent lower at 496p after its forecast-matching full-year profits were overshadowed by a cautious outlook.

EasyJet, the UK budget airline group, climbed 1.4 per cent to 588p after reporting a 48 per cent rise in full-year pre-tax profit as passenger traffic increased.