Britain's top share index ended 1.9 per cent higher yesterday as strong gains on Wall Street and by oil heavyweights offset fresh falls from struggling banks amid more turmoil in the financial sector. At the close, the FTSE 100 index was up 76.39 points at 4,208.55, the day's peak, having hit a low of 4,033.40.
The UK blue chip index shed 2.4 per cent on Monday, and is still down 36 per cent on the year. Strength in oil majors helped the FTSE 100 index rally as crude rose above $55.50 a barrel yesterday in choppy trade, having slid to a new 22-month low earlier in the session.
BP, Royal Dutch Shell, and BG Group took on between 3.9 and 4.1 per cent.
US stocks bounced after Hewlett-Packard issued reassuring results and amid talk of a possible 0.5 percentage point Federal Reserve rate cut in December after wholesale inflation data came in weaker than expected.
News that British annual consumer price inflation tumbled to 4.5 per cent in October from 5.2 per cent the previous month had little initial impact but added to the positive mix in the afternoon.
"Those figures were really a good surprise and my guess is that we could be faced with another decent cut." said Mike Lenhoff, chief strategist at Brewin Dolphin Securities.
UK banks were among the heaviest bluechip losers with investors unnerved again by capital-raising concerns.
HBOS was the biggest FTSE 100 faller, down 15.4 per cent as investors bet that any alternative to the bank's takeover by Lloyds TSB had all but disappeared as comments from British finance minister Alastair Darling seemed to shut the door on alternative scheme gaining access to the government's industry recapitalisation funds.
Lloyds TSB shed 12 per cent.
Barclays fell three per cent, after shareholder pressure forced the bank to alter its fund-raising plans following its decision to take £5.8 billion pounds from Middle East investors.
Miners were mixed reflecting a balance of commodity price trends and corporate news. Xstrata shed 8.7 per cent impacted by a Cazenove rating downgrade on Monday.