Old Mutual led a rebounding FTSE 100 on hopes it could break itself up. The South African insurer has fallen heavily amid fears it will have to launch a rights issue to bolster its regulatory capital position.

JP Morgan has said that since its cash flow comes in the weaker Rand while its debt is in hard currencies, its regulatory capital surplus may have fallen below the level required to maintain its current credit rating. It reckons it could raise £1.5 billion in a discounted rights issue which would cut debt and allow it to restructure its US, Scandinavian and South African arms into two or three seperate parts. That would make it worth some 90p. "We would recommend buying and participating in a rights issue at this level provided this course of action is followed," it said.

Old Mutual rose 25 per cent to 49p. Aviva added another 21 per cent to 314.75p after its Tuesday statement reassured on dividend and capital adequacy.

The FTSE 100 was up 5 per cent or 201 at 4217 by 11.25am.

Commodity stocks such as Xstrata, up 19 per cent and Anglo American, up 18 per cent, were bolstered by the falling dollar against sterling and most other currencies which drove commodity prices up. The dollar's fall and Wall Street's rally last night are being driven by the expectation of an interest rate cut in the US today.

There is also talk that pension funds are switching into equities and out of bonds to rebalance their portfolio at the end of the month. The dramatic fall in the value of equities and rise in government bonds in October means funds that have promised a fixed proportion of each asset have to reshuffle.

In the UK further cuts are also expected next week, but traders are wary about the sustainibility of any bounce. Volumes have been thin in recent days with most trading floors half empty for the schools half term holiday.

In the FTSE 250, Ferrexpo plunged 18 per cent to 43.5p after it warned of a sudden drop in demand for iron ore and its chief executive Mike Oppenheimer and corporate finance chief Dennis McShane quit. Founding Ukrainian oligarch Kostyantin Zhevago is taking Mr Oppenheimer's place.

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