Banking shares rise more than 30%

By early afternoon, HBOS had added 39%, RBS had gained 38%, Lloyds TSB had advanced 35%, and Barclays was up 31%.

The FTSE 100 index of leading shares also gained ground. It was up 7.4% or 360 points at 5,240.

The surge comes at the end of a turbulent week when the FTSE had lost 10% of its value by Thursday.

Late on Thursday, the Financial Services Authority (FSA) announced its temporary move to ban short-selling in a number of financial shares.

Short-selling involves traders profiting from falling share prices.

The technique works when investors borrow shares from another investor, and then sell them hoping the price will fall.

The aim is then to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Previously anyone could short a position in a company's shares, but typically hedge funds were the main players.

The temporary ban on short-selling applies to 29 financial stocks.

It was introduced by the FSA due to concerns that short-selling had been a contributory factor in the sharp falls in HBOS shares before it was rescued by Lloyds TSB.

The ban, which came into force at midnight on Thursday, will last until 16 January but the FSA will review its operation in 30 days.

"While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets," said FSA chief executive Hector Sants.

Paul Edmondson of City lawyers CMS Cameron McKenna said he wasn't sure if the ban on short-selling had been "fully thought through".

"The move is obviously intended to stop further speculative attacks on bank share prices," he said.

"Politically that must make sense - a perception of stability in the markets has to be a good thing and speculators profits are not a political priority.

"Unfortunately, the fact is that short sellers provide a lot of the liquidity in the market which will now disappear."

'Heart of problem'

European stocks were also up strongly on Friday following the announcement overnight that US officials are working on a plan to help rid US banks of their bad debts.

US Treasury Secretary Henry Paulson said he wanted a solution that "aimed right at the heart of this problem".

France's Cac 40 index was up 6%, while Germany's Dax had advanced 3.8%.

Wall Street's Dow Jones finished Thursday up 3.9%.

Source: BBC News