U.K. Stocks Advance, Led by Banks; Lloyds, Barclays, RBS Climb

By Sarah Jones

Feb. 6 (Bloomberg) -- U.K. stocks rose, led by banks on speculation a U.S. financial-rescue plan expected next week will help stabilize the economy.

Lloyds Banking Group Plc, Barclays Plc and Royal Bank of Scotland Group Plc rose at least 7 percent after a government official said President Barack Obama’s administration will announce proposals to deal with toxic assets in three days. British Airways Plc, Europe’s third-largest airline, increased 5 percent as sales gained.

The benchmark FTSE 100 index added 29.43, or 0.7 percent, to 4,258.36 at 1:05 p.m. in London, extending this week’s increase to 2.6 percent. The broader FTSE All-Share Index rose 0.9 percent, while Ireland’s ISEQ Index added 1.7 percent.

Treasury Secretary Timothy Geithner will unveil the financial-recovery package on Feb. 9, a U.S. Treasury official said yesterday. The plan is likely to emphasize guarantees of toxic assets over the creation of a so-called aggregator bank that would remove them from balance sheets, according to people familiar with the proposals.

“There is a bit more optimism around today,” said Mark Outten, a London-based senior dealer at GFT Global Markets. “Investors are optimistic that quite a large package is going to be passed. Together with fiscal stimulus from monetary policy, they really are throwing the kitchen sink at the problem.”

Banks Advance

Lloyds, Britain’s biggest mortgage lender, rallied 7.5 percent to 108.1 pence. Barclays, which turned down government funding last year, rose 9.8 percent to 109.8 pence.

RBS added 8.6 percent to 23.9 pence. The biggest lender controlled by the U.K. said seven non-executive directors are retiring as the bank clears the way for three government-endorsed appointees to join the board.

British Airways Plc added 5 percent to 134, a fourth day of gains, after reporting a 6.2 percent increase in sales for the first nine months of the year to 7.05 billion pounds ($10.4 billion). The carrier reported a net loss of 127 million pounds.

Reports today showed U.K. manufacturing production dropped 2.2 percent in December, extended its worst streak of contraction in almost three decades, and personal insolvencies increased in the fourth quarter as unemployment rose, suggesting the recession is deepening.

Another report today may show unemployment in the U.S., the world’s largest economy, climbed in January to the highest level since 1992 as payrolls dropped for a 13th straight month.

The following stocks also gained or fell in the U.K. and Irish markets. Stock symbols are in parentheses.

U.K. companies:

Dana Petroleum Plc, (DNX LN) rose 52.5 pence, or 5.7 percent, to 968 after the explorer in the North Sea and Egypt boosted reserves and increased production 29 percent last year to a record.

Hammerson Plc (HMSO LN) rose 21 pence, or 5.6 percent, to 398.5 after Cazenove upgraded the U.K. property company that co- owns London’s Brent Cross shopping center to “outperform” from “in line.”

InterContinental Hotels Group Plc (IHG LN) gained 29.5 pence, or 5.7 percent, to 547 after Credit Suisse Group upgraded the world’s biggest lodging company to “outperform,” saying there are prospects for a U.S. recovery.

Peter Hambro Mining (POG LN) lost 25 pence, or 5.1 percent, to 470 after the second-biggest gold producer in Russia agreed to buy Aricom Plc (ORE LN) for 294.5 million pounds in an all-share deal. Aricom shares rose 1 pence, or 3.9 percent, to 27.

TUI Travel Plc (TT/ LN) lost 2.5 percent to 236.5 pence, trimming yesterday’s 8 percent, after Citigroup Inc. lowered its recommendation for Europe’s largest travel company to “hold” from “buy.”

Irish companies:

Aer Lingus Group Plc (AERL ID) rose 10.5 cents, or 12 percent, to 99 cents after Ireland’s second-biggest airline said its long-haul load factor increased in January. The proportion of seats filled on long-haul flights rose to 63.8 percent last month as the carrier cut capacity.

Smurfit Kappa Group Plc (SKG ID) fell 5 cents, or 3 percent, to 1.63 euros after Merrion Capital said Europe’s largest maker of corrugated boxes runs a “not insignificant” risk of breaking its banking covenant in 2010 as profit drops.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.