FTSE jumps 4.3 pct as bank plan lifts confidence

By Simon Falush

LONDON (Reuters) - The top share index was up 4.3 percent by midday on Monday, recouping some of last week's heavy losses as a government deal to pump billions of pounds into the troubled banking sector lifted market sentiment.

Oil and mining stocks rebounded strongly as commodity prices recovered and some banking stocks gained but HBOS HBOS.L, Lloyds TSB (LLOY.L), and Royal Bank of Scotland (RBS.L) tumbled again as investors fretted that moves by the government to take stakes in the firms would limit returns.

By 12:06 p.m. the FTSE 100 .FTSE had gained 168.9 points to trade at 4,100.9 after falling 8.9 percent on Friday and haemorrhaging 21 percent last week, its biggest fall since 1987.

The FTSE 350 banks index .FTNMX8350 was up 3.7 percent after the government said it would make capital investments worth 37 billion pounds in RBS and a merged Lloyds TSB (LLOY.L) and HBOS HBOS.L.

"Market sentiment is a bit more positive, the government has grasped the nettle and committed to a rescue plan," said Keith Bowman, equity strategist at Hargreaves Lansdown.

"There's still a huge amount of nervousness and volatility around but we do seem to have taken a step in the right direction with some coordination from governments and some definite action."

HBOS dropped 26.2 percent and Lloyds TSB lost 9 percent after the latter said it had renegotiated its agreed takeover of HBOS, dropping its offer to 0.605 of a Lloyds share for every HBOS share, down from the 0.833 agreed on September 18.

Royal Bank of Scotland tumbled 21 percent to 57.5 pence. RBS was trading at around 370 pence in January and peaked at over 600 pence in March last year.