LONDON'S leading shares rose yesterday on hints that the Bank of England may not increase interest rates in an attempt to prevent "unnecessary volatility".
The hints, contained in a letter from Governor Mervyn King to the Chancellor explaining why
inflation in May was above 3 per cent, cheered investors, pushing the FTSE-100 index of Britain's leading shares up more than 100 points for much of the afternoon.
The Footsie closed up 67.3 points at 5,861.9, although it was dragged down by a weak start to trading on Wall Street.
Banking shares were gain in favour, with Barclays leading the sector on further cheer driven by the confirmation that it is seeking to raise additional capital to boost its balance sheet.
The bank rose 11.5p to 340.5p on hopes it may raise as much as £7 billion, backing up Monday's 3 per cent climb.
Royal Bank of Scotland, which like Barclays was upgraded by analysts at Dresdner Kleinwort, added 6.25p to 241.25p.
Halifax Bank of Scotland also gained ahead of its keenly anticipated report to the market, expected this week. The Edinburgh-based bank was up by more than 6 per cent during trading yesterday but settled to close up 10.75p to 326.75p.
Standard Chartered bucked the trend, closing down 29p at 1,611p.
Mining companies also bounced back, with Eurasian Natural Resources leading the index, helped by an upgrade by ABN Amro this week and firmer base metal prices. Shares gained 6 per cent or 87p to 1,491p, while Lonmin rose 137p to 3,266p and Anglo American climbed 135p to 3,472p.
Premier Inn and Costa Coffee owner Whitbread rose strongly as the leisure firm impressed the City with like-for-like sales growth of 7.1 per cent in the first quarter. Shares rose 48p to 1270p.
Housebuilders were back in the red, with the market digesting news that former FTSE-100 company Taylor Wimpey now has a "junk" credit rating according to the agency Fitch, reflecting fears it could breach its banking covenants.
Taylor Wimpey fell 2.75p to 76.5p. Persimmon, set to be demoted from the FTSE-100 next week, closed down 8.25p at 413p, and Barratt Developments, the sector's biggest victim, closed down 7p at 90.5p, undoing the previous day's gains.
The leading Footsie faller was publishing group Reed Elsevier, which dropped almost 3 per cent after a downgrade for European media firms from analysts at Morgan Stanley, which claimed that the sector will remain under intense pressure in the coming months. Shares in the publisher fell 17.5p to 592p.
FirstGroup, Britain's largest bus and train company, rose however, adding 9p to 525p, while, in the FTSE-250, Stagecoach rose 1.8 per cent to 243p as it announced an expansion of its US-based Meagbus operation.
The full article contains 495 words and appears in The Scotsman newspaper.
