Bank shares rise on dividend talk and Northern Rock

LONDON (Reuters) - Shares in banks rose on Monday on hopes of higher dividends and after the government decided to nationalise stricken mortgage lender Northern Rock.

"This is slightly positive for the sector as the expected managed decline in the Northern Rock balance sheet should create less competitive mortgage market conditions," Bear Stearns analyst Robert Sage said in a note.

Barclays rose 6 percent to top the gainers' list on the FTSE 100, which was up 1.7 percent and was the biggest blue-chip gainer in Europe. The sector accounted for one-third of FTSE's rise.

HBOS advanced 3.6 percent, Royal Bank of Scotland climbed 3.1 percent, Lloyds TSB gained 4.6 percent, Standard Chartered added 4.1 percent, HSBC put on 2.3 percent and mid-cap Bradford & Bingley added 1.7 percent.

Investors in Northern Rock, Britain's most prominent casualty of a global credit market turmoil, have reacted with anger to the prospect their shares could be worthless after the nationalisation.

Shares in hedge fund RAB Capital, one of Northern Rock's biggest shareholder, fell as much as 10 percent.

Barclays and Lloyds were also helped up by a Sunday Times report, saying that the two banks were likely to lift their dividend payments when they report their results this week.

"There was a Sunday Times article talking about Barclays and Lloyds increasing their dividend and saying results would be fine," a trader said.

Barclays, Britain's third-largest bank, is due to report its 2007 earnings on Tuesday, followed by Alliance & Leicester on Wednesday and Lloyds on Friday.