A six-month surge for Drax Group, Britain’s single-biggest emitter of carbon dioxide, was choked yesterday by fears that the Government would hit the company with a windfall tax.

The owner of the giant coal-fired power station that produces 4 per cent of the country’s CO2 emissions lost 39½p to 714½p after analysts at Cazenove and JPMorgan both cautioned that the risk of tougher carbon taxes was growing. Cazenove reiterated its “underperform” advice saying that Drax, whose free carbon dioxide permits account for more than 40 per cent of its forecast earnings this year, was the generator most exposed to tougher carbon taxes.

Evolution said Drax’s recent strong run was driven by the rising oil price and if oil’s run came to an end, the company, which has benefited from relatively cheap coal and high electricity prices, would feel a disproportionate amount of pain.

The FTSE 100 erased most of Tuesday’s and Wednesday’s losses, closing up 135.7 at 5,286.3, lifted by stronger than expected results from JPMorgan Chase in the US, which raised UK banks. Barclays gained 23¾p to 290½p and RBS was up 14½p to 179½p. Even Lloyds TSB rose 16½p to 300½p despite UBS cutting its price target to 250p and warning that a dividend cut was on the way since it had overexpanded last year. Traders warned that much of the rally was down to hedge funds taking profits on short positions.

ITV was a case in point, up 3.8p to 45p on more vague talk that Bertelsmann, which controls RTL, might bid. But like many companies with big pension liabilities, it is immensely volatile.

Trinity Mirror, one such company, gained another 13¼p to 73¾p after Wednesday’s statement, which clarified debt levels and said that it did not expect the pension fund to need extra cash this year. But analysts said the worry is about next year. Morgan Stanley named Trinity Mirror, British Airways, up 2p at 227¼p, and Go-Ahead, down 69p at £17.31, as the three most exposed to pension risk.

Jonathan Barratt, of Kaupthing, reiterated his Trinity “sell” advice, while Cazenove analyst Jonathan Helliwell said a cocktail of the pension fund calling for further cash late this year, followed by trading deteriorating in late 2008 and 2009, could be enough to push the company towards its borrowing limit.

Yell gained 4¾p to 64p despite UBS saying it expected the publisher of Yellow Pagesto cut its 2009 dividend completely to meet debt repayments. UBS added that “forced asset sales or a rights issue may be required to avoid breach of covenants next year”.

Wellstream has lost more than a quarter of its value in two weeks amid fears that it may not win a key contract to supply Petrobras with flexible drilling pipes. But the shares gained 65p to £10.55 after Citigroup said: “We believe negotiations are near the final stages and would hope to hear an announcement as soon as this summer.”

Informa lost 29¼p to 395p amid talk that a consortium of private equity bidders offering 506p had not been able to raise the cash. But insiders said fundraising efforts were continuing.

— New York: US stocks rose as stronger than expected earnings from JPMorgan Chase and a dip in oil prices outweighed weak regional economic data. The Dow Jones industrial average closed up 207.40 points at 11,446.70.

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