A change in sentiment over banks and a concerted rush to close short positions left every stock on the FTSE 100 index in the black yesterday. London’s leading index surged 165.5 points to 6,306.2, after being given extra impetus in the afternoon by a resurgent Wall Street.

Talk that Citigroup had rebuffed a tentative merger offer from Bank of America and vague talk of Chinese approaches to UBS helped, as did Credit Suisse issuing a “buy” on UBS, saying that it was less than convinced that further writedowns would be necessary. Writedowns at Citigroup and UBS had been two of the biggest worries for the market.

The activity also generated talk of a bid for Alliance & Leicester (A&L) up 38½p to 635½p, from a foreign bank such as Santander, owner of Abbey, although dealers said that hedge funds closing their short positions were more likely to be behind A&L’s rally and that of much of the market. “I just had a feeling that the market was close to bottoming out,” one said. “This is a technical bounce-back because stocks were oversold.”

Barclays was the top-performing bank, up 30p to 554p, but Sage, up 19½p to 213p, and Compass, up 27p at 316¼p, were the biggest overall gainers on reassuring results.

Bid speculation again circled around Premier Oil, up 32p at £12.66, Burren Energy, up 43p at £11.16 and Tullow Oil, up 32p at 635½p. Phil Corbett, of ABN Amro, speculated that Mol, of Hungary, could bid for Premier as part of its defence against a takeover. There is continuing talk that Mittal could bid for Burren. Speculation about a bid for Rank, the casino and bingo operator, lifted it 8¾p to 92¼p, on over three times the average volume, although shorters closing their positions could also account for the rise. The Las Vegas-based Harrah’s Entertainment could sweeten its offer to sell its UK clubs to Rank in return for a stake. Genting, a rumoured predator, would seem unlikely, since it has just taken a big writedown on its UK bingo and casinos. Ladbrokes was seen as another candidate, but it was buying back shares yesterday.

Just two blue chips, National Grid and Resolution, were unchanged at 811p and 706p respectively. Even Wolseley was up 7p at 648p, despite a trading statement described by Panmure Gordon as a profit warning. The builder’s merchant said that the woes of the British and American housing market would spill over into the home repair and commercial and industrial market.

Paragon jumped 14¼p to 138¼p, helped by Credit Suisse setting a 175p target price and saying that it should successfully refinance its £280 million loan. Regus was up 5¾p to 80¾p. Its short-lease offices will be a beneficiary of falling demand for long-term space.

The announcement that Biffa’s chief executive would depart reignited takeover talk; it rose 20p to 309p. Geoff Lowery, of Dresdner’s, who in had predicted Pendragon’s Tuesday profit warning, said that Inchcape, up 17p to 410¾p, was a strong “buy” since it would not suffer its rival’s problems.

–– New York: Stocks on Wall Street achieved their biggest two-day rise in years, as comments by a Federal Reserve official boosted hopes of a cut in interest rates. The Dow Jones industrial average closed up 331.00 points at 13,289.40.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive