Banks lead FTSE 100 higher

The FTSE 100 closed higher for a second day on a banking rally and was up by 1.17 per cent to 4,959.59.

HBOS shares rebounded strongly and closed up by 15.77 per cent, after a major investor backed the deal with Lloyds TSB and the prime minister insisted the takeover would happen.

Lloyds TSB shares also rose, by 10.6 per cent to 250.5p. The news also helped Barclays shares, which were up by 4.44 per cent.

Shares in Xstrata, which had surged earlier in the day, closed lower by 1.92 per cent. Lonmin, the company Xstrata said it was withdrawing its offer for, saw its shares plunge 20.27 per cent.

Vedanta Resources also fell, by 10.23 per cent.

Ryan Kneale, market analyst at City bookmaker BetsForTraders.com said: "The European markets are up as gains in banking and mining stocks lead the way.

"The markets are bracing themselves for the second round of voting on the US bailout plan, which will take place tomorrow. It is clear from events earlier this week, that if the bailout plan is rejected again, traders will be selling like fury and we can expect another downward day."