Banks and insurers were rallying today after talk of a bailout for the bond insurer Ambac in the US late on Friday and as bid hopes sent short sellers closing their positions.

Alliance & Leicester and Bradford & Bingley were the top gainers in the FTSE 100 and FTSE 250 respectively as weekend reports highlighted the fact that Lloyds TSB had said last week that it had examined the possibility of a takeover of one or the other of these mortgage lenders.

There has also been a rumour that HBOS is eyeing Alliance & Leicester and might sell its 60 per cent stake in St James's Place to help to finance a bid, athough this has been strongly played down by HBOS sources.

A&L was up nearly 8 per cent at 550p and B&B was up 8.2 per cent at 204p. However, both are bouncing from near all-time lows.

Royal Bank of Scotland was up 7.4 per cent at 406p ahead of its results on Thursday with talk of a big dividend increase and asset disposals. There was also a weekend report that the Qataris were looking to take a stake in the bank.

Better than expected profit figures from Hammerson, the developer, also helped to buoy sentiment. Its UK figures were in line but France was exceptionally strong, according to Mike Prew, of Lehman Brothers.

Hammerson gained 6 per cent to £11.24. Land Securities gained 4 per cent at £15.97 and British Land lifted 3.7 per cent to 999p.

Persimmon, the housebuilder, was up 5.3 per cent at 754p ahead of its results this week.

The FTSE 100 was up 102.3 at 5990.3 by 11.15am.

AB Foods came off 3.4 per cent at 846.5p after it unveiled a string of problems with its sugar operations that would bring profits down there. But it said that its bread division was performing strongly. This could mean that it is winning market share from Hovis, owned by Premier Foods since it bought RHM.

Premier Foods was the worst performer in the mid-caps, down 10 per cent at 95.75p — a new low — after ABN Amro began selling 15 million shares at 96p each for an unamed institution. Credit Suisse cut its Premier Foods price target from 250p to 100p and gave warning that it was close to breaching its bank covenants. It said: "For starters the dividend must surely be cut (which we now forecast). Disposals are also a probability in our view, albeit the group is in a weak position, and any sale would again be very dilutive."

The food producer has been dogged by worries about its £1.7 billion debt affecting its cash flow and fell 15 per cent on February 8 to 101.25p on a rumour that it would cut its dividend or do a rights issue to raise cash. It was forced to deny that it was contemplating a rights issue but said nothing about the dividend.

The market was first spooked in January when, in a trading statement, the company revealed that it had resorted to debt factoring — selling the right to collect money it is owed — to ease its cashflow problem.

Food producers are already under pressure as raw material prices surge and supermarkets are squeezing their suppliers to cut their prices.

Resolution, the insurer awaiting a 720p bid from Hugh Osmond's Pearl, lost another 10p to 653p after it gave warning of further delays to FSA approval of the deal late on Friday. There are growing fears it may not happen at all.

Stagecoach helped to revive the transport sector with better than expected figures. Some had been expecting a profit warning similar to Go-Ahead's last week. Stagecoach was up 5 per cent at 235.75p and Arriva gained 5 per cent to 709.5p.

Biffa fell 6 per cent to 345.75p after it said that Terra Firma and Suez Lyonnais had pulled out of talks to counter the 350p bid from Montagu Private Equity and Global Infrastructure Partners.

Charter, the mid-cap engineer, soared10.5 per cent to 865.5p after Lincoln Electric, a sector rival in the US, reported strong results on Friday. Lincoln said that it had experienced strong growth in Europe, Charter's market.

There was strong demand from steel producers, power generators and for agricultural equipment, all areas Charter services.

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