BP's share price soared almost 10 per cent yesterday after the group suspended its shareholder dividend and agreed to create a $20 billion fund for costs from the Gulf of Mexico oil spill.

The group's shares rallied 9.64 per cent to 369.50 pence on London's FTSE index of leading companies, which was 0.59 per cent higher at 5,268.83 points.

After meeting US President Barack Obama, BP's board agreed on Wednesday to freeze payments to shareholders and announced plans to set aside a huge claims fund worth the equivalent of €16.2 billion.

"It's a relief rally - the market was expecting some pretty stringent demands from the US government and so it could have been worse and the dividend suspension was not a surprise," said analyst Arifa Sheikh at fund managers GLC.

Investors welcomed the removal of uncertainty which has dogged BP ever since the Deepwater Horizon oil rig it leased sank on April 22.

"The bounce in BP is because some uncertainty has been removed," said David Morrison, analyst at financial spread-betting group GFT.

"We now know that €20 billion is being placed in escrow, that $7.8 billion in dividend payments are being cancelled, that $10 billion in assets will be sold and capital expenditure will be reduced by $4 billion.

He added: "Most importantly, this is seen as mollifying the US administration. However, the stock will remain vulnerable until BP manages to block the spill."