Investors in Taylor Wimpey, the housebuilder, glimpsed a rare ray of sunshine yesterday as hopes that the company had secured some breathing space from its banks lifted its shares more than 14 per cent.

Traders turned bullish after a report that Taylor Wimpey had reached agreement with its banks to relax lending covenants without the need for new cash. Citing sources familiar with the talks, Building magazine said that the company was likely to conclude an all-debt deal with the banks whereby interest-cover covenants would be turned into cashflow covenants.

The company, which has net debt of £1.7 billion, said last month that it faced breaching “one or more” banking covenants if the housing market continued to weaken. Barratt Developments, its fellow housebuilder, agreed a similar deal with lenders this month, replacing its covenants on interest-payment cover with ones based on ability to generate cash.

However, hopes that such a deal would be revealed today when Taylor Wimpey reports first-half results may be wide of the mark. It is understood that the company will give an update on its debt talks but that terms of a potential deal are not yet agreed. Results are unlikely to cheer the market, which is under pressure as house prices fall and potential buyers struggle to get mortgages, given that the company has said that housing completions were 33 per cent lower in the year’s first six months. Investors are more likely to focus on comments about the group’s outlook and any writedowns on its land.

Taylor Wimpey’s shares led the second tier, rising 6½p to 52p, and also lifted Bellway, up 20p at 602½p. Bovis Homes, up 13¼p to 441¼p, regained ground lost earlier in the session from reporting an 83 per cent slide in interim pre-tax profits, cutting its dividend and saying that difficult trading conditions would persist. Barratt eased slightly, falling ¼p to 135¼p.

After volatile trading, the FTSE 100 closed 34.9 points down at 5,470.7, pushed lower by oil stocks and miners as commodity prices dipped. Ferrexpo was the index’s biggest faller, down 23½p at 244½p, Kazakhmys fell 47p to £13.11 and Eurasian Natural Resources slipped 32p to £10.01. In oils, Cairn Energy was 86p lower at £27.80 and BP slid 3p to close at 516¼p, although losses were pared as oil rose as high as $117 a barrel amid fears that Hurricane Gustav could hit operations in the Gulf of Mexico.

Liberty International, the real estate investment trust, was the biggest riser, up 50½p to 995½p, after Simon Property Group, an American real estate investor, increased its stake to 4.22 per cent, fuelling bid speculation.

Rank, Mecca Bingo’s owner, fell ¼p to 72¼p despite news that its claim against HM Revenue & Customs (HMRC) for repayment of up to £25 million of overpaid VAT on gaming machines has been upheld in an interim decision by the VAT and Duties Tribunal. The case is expected to be referred to the European Court of Justice. In July, the tribunal upheld a claim by Rank over £36.3 million of overpaid VAT on bingo, a ruling that HMRC is challenging. Extra cash is likely to boost Rank’s appeal to suitors.

New York: A report showing a rise in consumer confidence soothed anxieties about the American economy. The Dow Jones industrial average was up 26.60 points at 11,412.90 at the close.

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