Market Update: HBOS up by 50 per cent

The FTSE 100 was up 90 points at 5002.4 and the FTSE 250 was up 271.5 points at 8581.3 at 12.22 pm. HBOS was the strongest on the senior index, up more than 50 per cent or 77.15p at 224.25p after agreeing to be taken over by Lloyds TSB. Lloyds, which was up 15.5p at 295.25p, will pay around £12.2bn for the troubled mortgage lender.

Reacting to the new, UBS said: "The Cruickshank report [on banking services] characterised UK banking as a 'complex oligopoly', a [fact] subsequently support by other government investigations. For the only serious contender to the oligopoly (HBOS) to be acquired by one of the incumbents confirms that there are the most interesting of times."

"The new Lloyds would create a UK banking powerhouse. It would have a 33 per cent share of current accounts, 29 per cent of outstanding mortgages and 23 per cent of the SME [small and medium enterprises] market."

Moving up...

Enterprise Inns was strong, up 30.5p at 232.75p after Goldman Sachs upgraded the stock to "neutral" from "sell", removing Enterprise from its widely followed "conviction sell" list.

"Following recent share price weakness we longer see the risk/reward profile of Enterprise as materially skewed to the downside," Goldman said, adding:

"We expect Enterprise's upcoming trading statement to yield little incremental negative news. Indeed, based up the recent trading statement of Punch Taverns, like-for-like profit decline may have improved over the past couple of weeks."

"This said, we continue to believe that Enterprise's current financing structure is unsustainable…"

Back in the banking sector, Barclays was up 12p at 329.75p after announcing a placing to raise £750m to fund the acquisition of Lehman Brothers' North American investment banking and capital markets businesses.

On the second tier, strength in the price of gold boosted precious metal producers and Hochschild Mining was up 25.27 per cent or 52.5p at 260.25p.

Weighing in on the movement in the gold price, Cazenove said the background for a spike was "at its most compelling".

"The massive injection of capital by the Fed to shore up the financial industry has clear connotations for the US dollar, inflation and will further stoke fears over general economic collapse. In the UK, there are genuine concerns over savings within the banking system. This should be the time therefore when investors start to turn to gold and silver," the broker said, adding:

"This began in earnest yesterday with the gold and silver price rising 10.8 per cent and 14 per cent - the biggest one day gain in 9 years."

Moving down...

British Airways was the weakest on the FTSE 100, down 15.5p at 227.75p after the airline said that the trustees of the New Airways pension scheme had notified it that the scheme's funding position at the end of March was 83 per cent, which corresponds to a deficit of £1.5bn.

On the FTSE 250, video games retailer Game was down 4.03 per cent or 8.75p at 208..25p after Altium reiterated its "sell" advice.

"As comparatives become more difficult in the all-important run-in to Christmas, we would anticipate that like-for-like sales [will] deteriorate further," Altium said, adding:

"The likely increase in pricing activity, led by supermarkets and general merchandisers, threatens gross margin expectations."