Talk of rising iron ore prices, mounting speculation that BHP Billiton would raise its bid for Rio Tinto and rumbles of Chinese intervention in the deal helped to trigger a stampede into stocks with exposure to the metal.

Rio, up 360p at £63.67, said: “Conditions in the iron ore market remain extremely tight with demand continuing to grow strongly.”

There are rumours that the Australian Government is pressuring BHP to raise its bid before Chinese intervention, and reports from Australia mentioned a possible dawn raid on BHP shares by Chinese state entities, similar to Chinalco’s stakebuilding in Rio. An agency of the Chinese Government said: “With iron ore prices rising explosively . . . domestic firms need strengthened macro guidance from the country” in their efforts to buy overseas iron ore assets.

The tightly held Eurasian Natural Resources, which mines iron ore in Kazakhstan, was the sector leader, up 80p to a record high of £13.40. BHP rose 95p to £18.65.

Banks performed even better, helped by hopes that Gordon Brown was about to persuade the Bank of England to underwrite mortgage securities and by JPMorgan’s figures in the US being not as bad as feared.

The FTSE closed at 6,046.2 points, up 139.3. However, some traders said volumes were low and added that there was a looming option expiry in the US on Friday that was forcing short sellers to close positions. The Dow Jones industrial average is thought to be more heavily shorted than ever. That means there could be a sell-off again next week. Heavily shorted banks showed the best gains, with Royal Bank of Scotland up 26½p at 375p, Barclays up 30p at 479p and Alliance & Leicester up 31½p to 503p, even though a credit-rating agency cut its debt rating.

Shorters were also booking profits on Experian, the credit checker, up 39¼p at 395¼p, after trading was better than expected.

Of the handful of fallers, Legal & General lost 6.4p to 124.5p as it said that the declining housing market would hurt sales of its mortgage payment protection policies.

Tesco, which had rallied on Tuesday after better than expected figures,lost 1¼p to 418¼p. Merrill Lynch downgraded it from “ buy” to “neutral”, saying that the UK retail market would only get tougher.

Smith & Nephew lost much of Tuesday’s 18p gain, falling 13p to 656p, after Nomura Code said that it could be hurt by the weak demand for medical products that Johnson & Johnson had drawn attention to this week.

Yell Group gained 7p to 164½p after Morgan Stanley said that debt fears were overdone and it could cut £100 million of costs by trimming jobs in sales, administration and marketing. Findel, the home-shopping firm, rebounded 39¾p to 444¼p after Kaup-thing said that recent falls looked overdone, given management’s apparent confidence, and that there could be an “immediate and substantial rebound”.

Imperial Energylost 37½p to 988½p after it priced a one-for-one rights issue at a big discount of 600p. New York: US stocks vaulted higher as investors were reassured by better-than-expected quarterly results from JPMorgan Chase and other blue chips. The Dow Jones industrial average rose 256.80 points to 12,619.27.

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