U.K. Stocks Rise on FSA Short-Selling Rules; Barclays Surges

By Adam Haigh

Sept. 19 (Bloomberg) -- U.K. stocks surged by the most since January after the regulator banned short selling of financial companies' shares until January 2009.

Barclays Plc soared 58 percent, Royal Bank of Scotland Group Plc rallied 40 percent, and Lloyds TSB Bank Plc climbed 66 percent. The Financial Services Authority in the U.K. yesterday said it was banning short sales on stocks of financial firms, where traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

``They are doing anything they possibly can to shore up the market,'' said Omer Bhatti, head sales trader at WorldSpreads Group Plc in London. ``These steps have never been taken before like this. I certainly would not like to be on the downside of the trade for today,'' he added.

The benchmark FTSE 100 Index added 196, or 4 percent, to 5,076 at 8:08 a.m. in London, the steepest climb since Jan. 24. The FTSE All-Share Index gained 5.2 percent, and Ireland's ISEQ Index increased 15 percent.

The FTSE 100 clawed back some of its decline this year as banks including Barclays and Royal Bank have been forced to raise capital as losses at financial companies topped $229.5 billion across Europe, eroding profits.

The regulator requires daily reporting of existing short positions in financial companies of more than 0.25 percent, it said in a statement yesterday after markets closed. The rules will remain in force for about four months. Ireland's regulator imposed a similar ban today.

Barclays, the U.K.'s third-biggest bank, gained 58 percent to 475 pence. Royal Bank, the second-largest, rallied 40 percent to 226.75 pence. Lloyds TSB Group Plc, the bank that yesterday acquired British mortgage lender HBOS Plc, gained 66 percent to 393 pence.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.