Headline shares closed with strong gains, with sentiment boosted by news of an EU deal to protect European finances and in anticipation of an imminent deal to form a new UK government. At the close of business, the FTSE100 was up 264.4 points at 5,387.42 with the FTSE250 ahead 512.86 points at 10,004.75 and the FTSE Smallcaps 99.68 points better at 2,885.85. US stocks moved sharply higher in late morning trade as news of the EU finance agreement settled nerves. Approaching the close in London, the Dow Jones Industrial Average was up 404 points at 10,784, the S&P500 rose 46 points at 1,157 and the Nasdaq Composite gained 96 points at 2,361.

LONDON MARKETS

As widely anticipated, the BoE Monetary Policy Committee elected to keep UK interest rates at the record low of 0.5% and maintain the stock of asset purchases financed by the issuance of central bank reserves (QE) at £200bn. Markets in London stormed ahead as investors welcomed an EU package of measures to stabilise the eurozone, including the creation of a Euro 720bn stability fund. Banking shares led the charge, with Barclays (LON:BARC) topping the leaderboard with a rise of 45.9p (16.2%) at 329.6p. Lloyds jumped 7.47p at 61p and Royal Bank Of Scotland Group Plc (LON:RBS) gained 6.25p at 51.75p.

Insurer Prudential (LON:PRU) gained 11p at 554p as it moved close to a final deal with the FSA which would give the Go-Ahead Group (LON:GOG)- for its planned acquisition of AIA.  Aviva (LON:AV.) and Legal & General Group (LON:LGEN)& also made strong progress, ahead 35.6p at 339p and 8.2p at 83.8p, respectively. Fund managers were also in the ascendancy on the new enthusiasm for financial issues, with Man Group (LON:EMG) up 18.1p at 228.2p and Schroders (LON:SDR) rallying 78p at 1,407p.

The sale of Harrods to Qatar Holdings sparked speculation that there could be further overseas interest in the UK retail sector, giving fashion house Next a lift of 108p at 2,235p, while Marks & Spencer Group (LON:MKS)& rose 17.4p at 347.1p, Burberry Group (LON:BRBY) added 48p at 697p and midcap department store group Debenhams Plc (LON:DEB) gained 4.5p at 70.6p. British Gas owner Centrica (LON:CNA) jumped 11.1p at 286.9p after it said it has performed well in the year to date.  British Airways (LON:BAY) closed up…

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