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

What is short-selling?
See banking sector shares

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.

News reported by The BBC

Details are emerging of an emergency plan by the US government to tackle one of the worst crises to hit the world’s financial markets in decades.

The US Treasury is proposing a fund worth up to $800bn (£440bn) to buy back a large proportion of the bad debt in the US mortgage market, reports say.

President George W Bush hailed the move as “unprecedented action” in the face of “unprecedented challenges”.

Congressional and Treasury officials will meet later to work on the plan.

Talks will continue throughout the weekend and the package is expected to be signed into law within days.

It is believed the intention is to find a way of bringing all the bad debts into one organisation whose task will be to hold them on behalf of the taxpayer until they can be sold off at some point in the distant future, says the BBC’s Justin Webb in Washington.

There are some members of Congress who are queasy at the thought of the taxpayer taking on hundreds of billions of dollars of currently worthless debt, he says.

But the leader of the Democrats in the House of Representatives, Steney Hoyer, said he expected quick action.

After a week of turmoil, stock markets around the world rallied on news of the rescue plan, with the UK’s FTSE 100 closing on Friday with its biggest one-day gain.

‘Maximum impact’

President Bush said swift, politically bipartisan action was needed to keep the US economy from grinding to a halt as problems sparked by the credit crisis had begun to spread through the entire financial system – leaving jobs, pensions and companies under threat.

President Bush on ”a pivotal moment” in the US economy

“These are risks the US cannot afford to take. We must act now to protect economic health from serious risk,” he added.

Treasury Secretary Henry Paulson said a “bold” move was needed to restore the financial system’s health.

Giving few details, Mr Paulson said the Bush administration was stepping in with a plan to remove so-called “toxic debts” from US banks’ balance sheets.

The programme, he said, must be “large enough to have maximum impact”.

“For us here in the UK the big question is whether what Paulson’s proposing makes it more or less likely that our government will have to launch a similar rescue scheme for our banks” President Bush

In the meantime, he said that the government would be stepping up action to increase the availability of capital for new home loans.

Once this difficult period was over, Mr Paulson said, the government’s next task would be to overhaul bank regulations.

The chairman of the Senate Banking Committee, Christopher Dodd, said he and his colleagues would need to see the details of the plan first, but he accepted that quick action would be needed.

“We understand the gravity of the moment,” said the Democratic senator.

Rescue moves

Earlier on Friday, the government announced plans to guarantee US money market funds – mutual funds that typically invest in low-risk credit such as government bonds and are often used by pension funds – up to a value of $50bn, in a move to further restore confidence.

“The Treasury and the Fed have finally realised the depth and systemic nature of the crisis” John Ryding, economist

Will the plan work?
McCain attacks bank assistance

Meanwhile, the Securities and Exchange Commission temporarily banned “short-selling” in the stocks of 799 companies. Short-selling is a form of trading which effectively bets that the value of a company’s shares will fall.

“The Treasury and the Fed have finally realised the depth and systemic nature of the crisis,” said John Ryding, an economist at RDQ Economics

“We believe that these actions will constitute the wider firebreak that will contain the crisis.”

Mounting fears that the credit crisis is beginning to spread out through the financial system have rocked shares and companies recently.

Investment giant Lehman Brothers collapsed this week, rival Merrill Lynch was bought out by Bank of America, and the US government has bailed out insurer AIG with an $85bn rescue package and state-backed mortgage lenders Fannie Mae and Freddie Mac.

News reported by The BBC

Shares in UK bank HBOS led a decline in banking stocks as turmoil on the financial markets triggered by the collapse of Lehman Brothers continued.

Investors are concerned that HBOS is too dependent on money markets to fund its lending as the cost of borrowing shoots up.

Shares in HBOS closed down 21.7%, or 50.5 pence at 182p. Earlier in the day the shares were down 34%.

In a statement, HBOS said it had a “strong capital base”.

Ratings agency Standard & Poor’s lowered its credit rating on HBOS. It said the bank’s credit risk was higher than some of its rivals because high loan-to-value and specialist mortgages made up a “sizeable” part of its mortgage book.

S&P also said that the ratio of loans to customer deposits at HBOS was higher than many of its similarly rated peers, making it more vulnerable to rises in borrowing costs on the money markets.

Confidence

HBOS, the biggest UK mortgage lender, was the biggest decliner in the FTSE 100 index.

Not far behind was Royal Bank of Scotland, whose shares ended down 10.2% at 189.1p. Barclays fared better, its shares closed down 2.53% at 308p.

The interest rates at which banks lend to each have risen sharply since Lehman’s dramatic collapse over the weekend, suggesting that banks are losing confidence in each other.

Overnight sterling Libor increased from 5.5% to 6.8%, and the dollar Libor rate increased from 3.1% to 6.4%.

HBOS said on Monday that the group had the strongest capital ratio of all the major UK domestic banks.

“As we reported at the interim results, we are comfortable with our funding profile. We have access to a diverse range of funding sources and that hasn’t changed,” it added.

HBOS was created in September 2001 following the merger of the Halifax and Bank of Scotland.

News reported by The BBC

Losses on stock markets have continued after the collapse of fourth largest US investment bank, Lehman Brothers, which has filed for bankruptcy protection.

European markets opened sharply lower for a second day, with the UK’s FTSE 100 and Germany’s Dax both down 1.7%.

Shares in Japan, South Korea and Hong Kong fell more than 5%, having been shut on Monday for public holidays.

Lehman, which may be about to sell its core assets to Barclays, is the latest victim of the global credit crunch.

Banks hit

The FTSE 100 of leading UK shares fell 91 points to 5,113 in morning trade. The Dax index of leading German shares was down 106 points at 5,959 points and France’s Cac 40 was down 65 points at 4,104 points.

The US stock market on Monday had its worst day’s trading since 9/11, with the Dow Jones index ending the day down 504.48 points, or 4.42%, at 10,917.51.

Japan’s benchmark Nikkei 225 index dropped 5% to a three-year low, shares in South Korea and Hong Kong shed almost 6% in value and Shanghai’s index fell by about 3%.

Chinese share prices closed 4.47% lower as the fallout from Lehman Brothers outweighed Beijing’s first interest rate cut in years, announced on Monday.

The benchmark Shanghai Composite Index, which covers both A and B shares, was down 93.04 points at 1,986.64 after touching a low of 1,974.39.

Markets in Taipei and Singapore were also sharply down, and the pattern was repeated in Australia and New Zealand, although the falls were smaller.

Bank stocks were hard hit again across Europe; in London HBOS was down about 12%, and Royal Bank of Scotland was down more than 7%.

Barclays Bank – which today said it was in talks to take on some of Lehman’s US operations – was one of the big fallers, down more than 5%.

In Paris, Credit Agricole, Societe Generale, and BNP Paribas were all down by nearly 4%, while in Germany Commerzbank dropped 8.6% and Deutsche Bank fell 3.7%.

‘Crisis’

Central banks in Asia attempted to calm markets after similar steps on Monday by their US and European counterparts.

“Big banks can no longer be under any illusion that they can make big, stupid financial bets and expect taxpayers to pick up the bill” Robert Peston, BBC business editor

Q&A: Lehman collapse

The Bank of Japan injected 2.5 trillion yen ($24bn; £13bn) into the banking system. Australia and India also pumped cash into their money markets.

The collapse of Lehman, which had incurred billions of dollars of losses from the failing US mortgage market, threatens to deal further blows to other financial institutions, as they unwind deals with the former investment giant.

“We’re in the middle of a crisis,” said YK Chan at Phillip Asset Management in Hong Kong.

Meanwhile, there were fears AIG, once the world’s largest insurers, could also face collapse.

The State of New York has announced a “multi-billion dollar financing plan” to stabilise the insurer’s finances.

Central banks in Europe and the US have also moved to reassure markets.

The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of $39bn into the financial system.

‘Rough spots’ ahead

US Treasury Secretary Henry Paulson said the US was “working through a difficult period in our financial markets right now as we work off some of the past excesses”.

Henry Paulson was upbeat despite the turmoil

He said Americans could remain confident in the “soundness and resilience” of the US financial system.

But he warned that uncertainty remained and it was likely that there would be further “rough spots” ahead until the correction of the US housing market was completed.

Mr Paulson said he was committed to working with regulators in the US and abroad, as well as policymakers in Congress to take the necessary steps “to maintain the stability and orderliness of our financial markets”.

But he gave no details of what such steps might mean.

On Monday President George W Bush said: “In the long term I am confident that our financial markets are flexible and resilient and can deal with these adjustments.”

News reported by The BBC

Autonomy, the data search specialist, is set to rejoin the FTSE 100 next month.

Currently in second place on the FTSE 250, Autonomy’s strong financial performance and a string of large contract wins recently make it a hot favourite to move up to the premier league. On Wednesday, FTSE International, the index compiler, is expected to confirm its promotion, which will come into effect on 10 September.

Last month, Autonomy posted revenue growth of 72 per cent to $125.6m (£67.3m) for its second financial quarter and profits before tax of $50.4m, beating even the revised analyst expectations. George O’Connor, an analyst at Panmure Gordon, said. “We would expect another earnings upgrade just on the back of the contract wins.”

The group’s stock closed at 1143p on Friday, up 8.3 per cent in the day to a 52-week high. Over the week the shares rose some 11 per cent following an upgraded “buy” rating from Panmure.

But the high price is not just down to the favourable predictions – its shares have been trading at £10 and above since early July.

“There are a number of buyers that are coming in, in anticipation of Autonomy joining the top person’s club, so the stock is moving up strongly and there is a volume of trade,” Mr O’Connor said. “Once it is into the FTSE 100, the index buyers will get involved, pushing the price up again, so quite a few of those going along for the ride will make a nice profit.”

Autonomy first entered the FTSE 100 in December 2000, but it dropped out of the blue-chip club after the bursting of the technology bubble.

The software industry as a whole has so far proved broadly resilient to the slowdown affecting some sectors of the economy. Mr O’Connor said. “You can see the consumer-driven and financial service verticals having a pretty bad time, whereas the news from companies like Autonomy and Logica is positive.”

Autonomy, whose chief executive and founder is Mike Lynch, is doing particularly well because its speciality – detailed searching of unstructured data such as emails – looks particularly attractive as the regulatory burden on business rises.

Richard Holway, a software industry expert, said: “If you think of everything that has happened in the past year, with the credit crunch and the rogue trading scandal at SocGen, Autonomy really has been the company that can really meet companies’ requirements to very quickly work out if something is going wrong.”

News reported by The Independent

Pension funds of firms listed in the FTSE 100 stock index are back in the red after their biggest annual swing in funding levels since 2002.

Actuarial group Lane Clark & Peacock (LCP) found that the pension funds had a net deficit of £41bn in mid-July.

This compared with a £12bn surplus in mid-July 2007, which had been the first surplus for five years.

But the report said that the deficit could have been far worse but for firms re-stocking their pension schemes.

‘Volatility’

The actuaries said that the past year had been one of the most remarkable in the 15 years in which they had been producing their annual report.

“Not only have we had fears of rising inflation, which has driven up the liabilities of pension funds and the amounts companies need to hold, but the stock markets have been volatile, and recent falls have reduced the value of the assets,” said Bob Scott, a senior partner at LCP.

“Last year’s ‘surplus’ lulled people into a false sense of security” Dr Ros Altmann, Pensions expert

The position could have been worse, but for these companies pumping nearly £40bn into their pension schemes over the past three years and taking some steps to reduce risks.

The analysis by LCP suggests that the pension schemes of big firms quoted on the stock market are in an unhealthier position than final salary schemes generally.

Each month the Pension Protection Fund publishes an analysis of their financial position of nearly all 7,783 such schemes in the UK, which are mainly in the private sector.

In June they had a collective surplus of just £8bn, down sharply from £53bn at the end of May and far worse than the position a year ago when the schemes enjoyed a surplus of £130bn between them.

The PPF said 71% of schemes were in deficit while 29% were in surplus.

Warning

Mr Scott said that the brief period of surplus until early 2008 had allowed some companies to take the opportunity to cut down on their pension risks, by offloading their schemes or investing less in shares.

But he was keen to give a warning about the future for pension funds.

“No sooner have companies breathed a sigh of relief about returning to surplus but they are back to multi-billion pound deficits,” he said.

“With a possible recession looming and the threat of further regulatory intervention, the outlook for continuing defined benefit provision seems rather bleak.”

Dr Ros Altmann, a former government adviser on pensions, commented that the LCP report was worrying reading.

“Last year’s ‘surplus’ lulled people into a false sense of security but was probably an illusion,” she said.

“The research shows pension contributions fell from £13.4bn to £13.1bn over the year and suggests that most companies have not done much to reduce their pension risks.

“It is inevitable that employers will keep on closing schemes to both new and existing members, especially in the face of so much uncertainty around the funding and costs,” she added.

News reported by The BBC

The UK is facing a serious risk of recession within months, the findings of a survey of almost 5,000 small, medium and large businesses suggest.

The British Chambers of Commerce’s (BCC) quarterly report found the credit crunch and rising costs had dented the most important sectors of the economy.

It came as the FTSE 100 stock index briefly dipped into a “bear market”.

Prime Minister Gordon Brown said he was the right man to steer the UK economy through “difficult times”.

Global stock indexes have also fallen amid concerns about the global economy.

WHAT IS A RECESSION?
There are a number of definitions of a recession.

The most commonly used one is when there are two quarters in a row of economic contraction, or negative growth.

But it is quite possible to have two quarters of negative growth and another couple of quarters of decent growth – so the economy actually grows year on year, despite going through a technical recession.

The gloom surrounding the UK economy has been amplified by a string of further developments including:

Housebuilder Persimmon revealing it had cut 2,000 jobs amid woes in the UK housing market. The building firm said that completions of house sales in the first six months of the year were down 30%, during what it described as the “most challenging period in our recent history”.
The Council of Mortgage Lenders saying that a recovery in the mortgage squeeze was still “some way away” – revealing that the number of loans for home purchases remained low in May at 52,700.

Shares in troubled lender Bradford & Bingley falling another 16% on Tuesday after Monday’s 18% drop as concerns lingered over its fundraising plans.
Grim outlook

Firms in the manufacturing and services sector said domestic sales and orders had slowed over the past three months, said the BCC, which added that firms were also experiencing serious cash-flow problems.

Its economic adviser, David Kern, said the survey showed a “menacing deterioration” in UK prospects.

“We are now facing serious risks of recession,” he said.

“The outlook is grim and we believe that the correction period is likely to be longer and nastier than expected.”

There are a number of definitions of a recession, but the most commonly used one is when there are two quarters in a row of economic contraction, or negative growth.

Services firms, which include restaurants, gyms and tour operators, have been particularly hard hit, the BCC reported.

Sales and orders, job expectations and confidence in this sector had hit their lowest levels since the recession of the early 1990s.

The BCC’s director general David Frost said the report was deeply worrying.

“I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country,” he said.

“To put more pressure on business would not only restrict business growth and hit the consumer hard, it would crush further what our economy is based on – confidence.”

Mortgage drought

The report is likely to add to the wave of pessimism sweeping across the business world, from retailers to house builders.

Last week, the housing market suffered another blow when the Bank of England said mortgage approvals had plunged by 28% in May and were 64% lower than a year earlier.

House builders are cutting jobs and offices as the property slump continues. Before the news of the job cuts at Persimmon, rival builders Taylor Wimpey and Barratt Developments had announced 2,000 redundancies in the past week.

The mortgage drought has meant many people have been unable to secure the finance they need for a new home, while falling property prices have also put people off buying.

There was more bad news for the economy on Monday, when official figures showed that industrial output was falling at its fastest rate for more than a year.

Meanwhile, Marks and Spencer sent shivers across the retail sector last week when it reported a shock downturn in sales.

Some economists believe the chances of a recession in the UK are now 50:50.

They had hoped the slowdown in the economy would eventually reduce inflation, without turning into full-blown recession.

News reported by BBC

FTSE 100 property giant Land Securities is expected to keep hold of a £400m hotels business as it considers offers for Trillium, its outsourcing and infrastructure division, this week.

Although Land Securities has been attempting to sell the complicated business in bulk, it is understood that chief executive Francis Salway is happy to retain hotels run by Trillium. These would complement the group’s other property holdings.

A consortium comprising William Pears, Macquarie and Goldman Sachs’ Whitehall fund is favourite to snap up Trillium and is thought to have bid around £900m. This, though, does not include the hotels and so values the division at around £1.3bn.

Another consortium of Middle East investors and fund manager aAIM was reported to have made a late bid of around £1.2bn on Friday.

Land Securities will hold an annual general meeting on Wednesday when it will update shareholders on the sale. Before then, it is believed that the board will decide whether to accept an offer provisionally, retain Trillium or demerge it from the rest of the group.

News reported by The Independent

London’s index of key shares, the FTSE 100, has closed in “bear market” territory after another tough day for shares in Europe and the US.

The FTSE 100 lost 145 points, or 2.7%, to end at 5,261.6 points. A bear market is often defined as a 20% fall from a stock index’s recent peak.

Friday’s closing price is more than 20% below its June 2007 peak of 6,732.

Markets have struggled amid concerns about the world economy and the impact of slower growth on company earnings.

“The movement this afternoon was a clear indication that we haven’t reached the bottom and the bears are still fully in control,” said Angus Campbell, head of sales at Capital Spreads in London.

Banks hit

High oil prices, which hit a fresh record above $147 a barrel earlier on Friday, have also undermined investor confidence.

In Paris, the Cac 40 share index ended the day down 3.1% at 4,100.64 points, while in Frankfurt the Dax finished 2.4% lower at 6,153.30.

On Wall Street, the blue-chip Dow Jones index ended down 1.14% at 11,100.54 points on heightened fears over the financial health of the nation’s two largest mortgage firms.

Shares in Fannie Mae and Freddie Mac ended down 22% and 3% respectively in volatile trading, with both counters plunging as much as 50% shortly after the open.

In London, banks were among the biggest losers, with Royal Bank of Scotland down 8.5%, Standard Chartered sliding 7.8%, and HBOS shedding 1.8%.

News reported by BBC

Inflation worries, near-record oil prices and fears of further bank losses have led to a sell-off of shares across global stock markets.

Key share indexes in India and China both fell 3% while Japan’s main index fell for its ninth consecutive day for the first time in four years.

In Europe, the FTSE 100 fell 2.6% while the Cac40 fell 2.1% and the Dax 1.6%.

But in New York the Dow Jones Industrial Average bucked the trend, ending the day up 0.28%.

Bank rumours

Swiss bank UBS, which has been one of the biggest victims of the widespread financial crisis caused by the US housing slump, reshuffled its management on Tuesday.

This sparked speculation that the firm, which has announced plans to cut more than 5,000 jobs, could be set to announce further losses from failed mortgage-backed investments.

It has already incurred losses of more than $37bn.

“We haven’t hit the bottom yet… investors are still pessimistic at this point” Zhang Xiuqi, Guotai Junan Securities

“There is more concern coming back in on the banking sector again,” said Andrea Williams, head of European equities at Royal London Asset Management.

“There are a lot of rumours about writedowns.”

Earlier, Asian stock markets were hit by concerns that rising inflation, stoked by higher prices for oil and raw materials, would eat into company profits and slow economic growth.

In India, where inflation is at a 13-year high, the main Sensex index in Bombay slid 3.7% to 12,961.68. Shanghai’s main index. meanwhile, fell 3.1% to 2,651.6, a 16-month low.

“We haven’t hit the bottom yet,” warned Zhang Xiuqi, from Guotai Junan Securities.

“That is because investors are still pessimistic at this point.”

Losses in Japan were limited despite the closely-watched Tankan survey of corporate prospects showing that business confidence had fallen to a five-year low.

News reported by BBC