Closing Market: Lloyds leads FTSE to a strong close

The UK’s blue chip index added on earlier gains on Thursday afternoon as the government’s liberal application of sticking plaster for banks continued to bolster sentiment.

The FTSE 100 closed 1.73% higher to 3,915, led by financials.

RBS closed up 25% to 20p; although it posted the biggest loss in UK corporate history this morning, investors had been expecting even worse. Plus, while the bank confirmed it intends to insure toxic assets to the tune of £325 billion under the Treasury's Asset Protection Scheme, it is sealing the deal with a fee of £6.5 billion, or 2% of the total. RBS will also raise a further £13 billion in capital through the issue of new shares to the government.

Lloyds reports tomorrow morning. The bank, which closed 306% higher today to 75p, has already kitchen-sunk a lot of its bad news. Earlier this month Lloyds updated the market with the news that HBOS made a loss of £10 billion in 2008. Sir Victor Blank, chairman of Lloyds Banking Group, subsequently said that all of HBOS's bad news is now out in the open. Lloyds confirmed today that it too is in talks with the government about insuring some of its toxic assets.

Insurers were also on the rise including Legal & General, up 27.5% to 44.5, Old Mutual, up 15.76% to 47p and Prudential, which closed 13.9% stronger to 305p.

A rally stateside had also given a boost to the FTSE. As London closed, the Dow was 1.07% higher to 7,348.

Investors on Wall Street shrugged off the news that General Motors lost $9.6 billion for the fourth quarter. US stocks were also resilient against data showing that unemployment claims were on the rise and manufacturers had been cutting back.

US president Barack Obama outlined his budget plans, alongside a $1.75 trillion deficit. He said $250 billion would be held for banks, should the economy worsen.