FTSE 100 closes higher

The FTSE 100 ended 16 points higher at 4,605.22 after a volatile day of trading, helped by a calmer Wall Street opening.

Financial stocks took a hammering as uncertainty stalked the market. HBOS closed 41 per cent down at 94p while Royal Bank of Scotland (RBS) shares also dropped to under a pound, ending the day 39.23 per cent lower at 90p.

Lloyds TSB shares lost 12.93 per cent of their value, while Barclays also saw its stock fall 9.24 per cent to 285p.

Rumours of a £50 billion banking bailout, which could see stocks in the banks diluted, sent shares in all four plummeting.

RBS and Barclays both strongly denied the stories.

In a statement to the stock exchange earlier today, RBS said: "Contrary to press speculation, RBS did not make a request to government for capital."

Barclays chief executive John Varley told an investors' conference this morning: "Contrary to press rumours, Barclays has not requested capital from the government and has no reason to do so."

Tim Hughes, head of sales trading for IG Index, said: "Coming into today many of us were expecting something of a quieter day and maybe a slight, steady recovery after Monday's sell-off but further uncertainty in the banking sector added a large dose of volatility to this morning's session.

"It shows just how bombed-out sentiment is at the moment that, with the RBS price trading 80 per cent lower than where it was a year ago, investors are still giving the sector a wide berth.

"A steadier start on Wall Street has helped to calm nerves in London but traders will probably want to see, at the very least, the FTSE climb back above Monday's highs of 4800 before believing that any bounce back is nothing more than a one day wonder."

The Dow Jones gained about 145 points just after the open but fell nearly 40 points in late morning trading.