Market Report: Shares up on signs of hope in money markets

The Government's efforts to stave off the collapse of the banking sector coupled with simultaneous action in major European centres left shares sharply higher, although it will probably take a few more days before markets decide whether the global economy has been granted more than a temporary reprieve.

RBS, which is receiving £20bn in aid and ousting its chief executive, Sir Fred Goodwin, fell 6p to 65.7p, or just 0.2p above the terms of its own rights issue.

Lloyds TSB, which hastily lowered the terms of its rescue bid for HBOS, finished 27p lower at 162p, and has agreed not to pay a dividend – a remarkable event for a company which always attracted investment support because of its strong dividend record. Barclays, which refused emergency funding, rose 7.7p to 215.25p. HBOS ended 34p or 27 per cent lower at 90p.

The massive amounts which need to be raised by the Government for what amounts to semi-nationalisation of the banks left some of the longer dated gilts up to £2 lower as dealers braced themselves for the glut of new bonds. The sale of the new gilts will get underway next week.

But at last there seemed some real relief for markets. The FTSE 100 soared 324.84, or 8.2 per cent, to 4256.9 – the second best performance since the index was formed in 1984.

Across Europe, where governments in France and Germany were also engaged in support operations fortheir banks, European shares soared by a record 9. 2 per cent, with the German Dax up 10.8 per cent and the French CAC 11.1 per cent better. "It will take some time for these initiatives to start working, but already there are some signs of hope in money andcredit markets," said Morgan Stanley.

One of the major movers in London was the package holiday group TUI Travel, up 22 per cent at 235p after TUI AG, the German conglomerate which owns 51 per cent of the business, cleared the decks to launch a full offer for the outstanding amount. TUI raised over $3bn from the sale of its container shipping operation, Hapag-Lloyd, the fifth largest in the world, to focus its efforts on tourism. The German group made a major push into the holiday market last year when it bought the UK operator First Choice and merged it with TUI Travel to create Europe's largest travel group.

The banking bailout had repercussions outside the sector as the property company Great Portland Estates fell 20.25p to 279p on speculation that its admired chief executive, Toby Courtauld, would be high on British Land's list to take over from Stephen Hester, who has been poached to take charge of Royal Bank of Scotland.

The vultures are also expected to start gathering in anticipation of feasting on businesses likely to be hived off by the new regime running the banks. RBS, even before the ink was dry on the rescue cheque from the Treasury, flogged its 9.9 per cent stake in the Norwegian insurer Storebrand for $159m.

The gathering storm over the recruitment sector turned darker as the Centre for Economics and Business Research forecast that the credit crunch will cost London 62,000 jobs over the next two years. The number of professionals in the capital's financial sector is expected to fall by 28,000 this year and 34,000 in 2009, with the axe landing most heavily on corporate finance, followed by derivatives workers. This all makes uncomfortable reading for recruiters such as Hays, 2.5p ahead at 74p, while Michael Page managed a 14.5p rise at 216p, although the broker UBS has cut its price target to 205p. The broker Collins Stewart has already trimmed its earnings forecast for another player, Spring, from £10.6m to £8m for the current year. Spring finished 0.25p down at 37.5p.

Elsewhere, Woolworths rose 23 per cent – or 0.9p to 5p – following the sale of leases on nine stores for £9m and speculation concerning the intention of Sir Alan Sugar, who has takenadvantage of the bombed-out priceto pick up a 3.9 per cent stake. Woolworth has fallen from 21.25p a year ago and is now valued at just £43m.

British Airways remained in demand, up 9p at 119p, helped by a Dresdner Kleinwort upgrade, while easyJet gained 15p at 317p, despite news that the number of people catching flights has fallen to a 20-year low. Passengers using Britain's major airports fell 4.9 per cent in September, and some investors are braced for a bumpy ride as the recession continues to ground people's travelling habits, although the falling oil price is helping the airlines.

The insurer Lancashire Holdings rose 6 per cent to 275p after announcing that it was exposed to the tune of $150m to hurricanes Gustav and Ike. Although the figure is hefty it gives the market a clear idea of the possible hit to Lancashire and eased concerns that the figure could have been a lot worse.