Page last updated at 16:22 GMT, Friday, 19 September 2008 17:22 UK

FTSE posts biggest one-day rise

FTSE graph

The FTSE 100 share index has closed more than 400 points higher, its biggest one-day rise, after the US confirmed a financial bail-out plan.

It ended the day 8.8% higher at 5311.3 points. But after a turbulent week on the markets, the FTSE was 105 points lower than its value on Monday.

Banking shares were amongst the biggest gainers, with Royal Bank of Scotland up 32% and Barclays and HBOS both up 29%.

They were helped by a ban on short-selling of financial shares.

The breathtaking rises in the price of bank shares this morning are symptomatic of a stock market that is bereft of reason and is being driven almost purely by fear and momentum.
BBC Business Editor Robert Peston

The restriction was announced late on Thursday by the Financial Services Authority (FSA) which banned short-selling in a number of financial shares.

Short-selling involves traders profiting from falling share prices. The technique works when investors borrow shares from another investor, and then sell them hoping the price will fall.

The aim is then to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Previously anyone could short a position in a company's shares, but typically hedge funds were the main players.

The temporary ban on short-selling applies to 29 financial stocks.

It was introduced by the FSA due to concerns that short-selling had been a contributory factor in the sharp falls in HBOS shares before it was rescued by Lloyds TSB.

The ban, which came into force at midnight on Thursday, will last until 16 January but the FSA will review its operation in 30 days.

Short-selling in layman's terms

"While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets," said FSA chief executive Hector Sants.

Paul Edmondson of City lawyers CMS Cameron McKenna said he wasn't sure if the ban on short-selling had been "fully thought through".

"The move is obviously intended to stop further speculative attacks on bank share prices," he said.

"Politically that must make sense - a perception of stability in the markets has to be a good thing and speculators' profits are not a political priority.

"Unfortunately, the fact is that short sellers provide a lot of the liquidity in the market which will now disappear."

The UK short-selling ban applies to shares in the following companies - Admiral, Alliance & Leicester, Alliance Trust, Arbuthnot, Aviva, Barclays, Bradford & Bingley, Brit Insurance, Chesnara, European Islamic Investment Bank, Friends Provident, HBOS, Highway Insurance, HSBC, Islamic Bank of Britain, Just Retirement Holdings, Legal & General, Lloyds TSB, London Scottish, Novae, Old Mutual, Prudential, Resolution, Royal Bank of Scotland Group, RSA Insurance, St James's Place, Standard Chartered, Standard Life, and Tawa.

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