Market Report: RBS regains ground as Irish implosion fears fade

With the blue-chip index finishing at its highest level since June 2008, Royal Bank of Scotland was just one of a number of companies celebrating following the first trading session of the new year.

RBS, which dropped nearly 15 per cent during the last two months of 2010, has been one of the worst hit in the banking sector by the recent worries over Ireland's economic situation. Yesterday, however, was a different story, after investors were told it was "time to buy again".

The bank gained 1.61p to 40.68p following a note from Ian Gordon of Exane BNP Paribas, who upgraded his advice on the group to "outperform" from "neutral".

The prominent analyst said the recent share price fall meant "a catastrophic outcome is now priced in", and added that "to justify the scale of reduction in market capitalisation seen in recent weeks, one would need to believe that residential mortgage loss severity will explode".

Still, Mr Gordon was not exactly bullish on RBS's outlook for 2011. Dismissing the idea that it will manage to return to 58p, which it reached last April, he said that instead "our view remains that 50p will prove to be an effective ceiling".

Overall, it was a storming start to the year for the FTSE 100, which smashed through the 6,000 point mark to close on 6,013.87, an increase of 113.93. With no trading in the UK on Monday, stocks took the opportunity to catch up with the US and European markets' strong gains.

Sentiment was also boosted by a range of positive data, with Monday's release of strong figures from both the Eurozone and the States followed yesterday by the news that manufacturing in the UK grew at its fastest rate for 16 years in December.

Fresnillo touched 1,767.21p as speculation returned that it could be a takeover target. Not for the first time, the Mexican billionaire Carlos Slim was reported to be thinking about making an offer for the group, but the silver miner failed to keep hold of its gains and finished 14p up on 1,682p.

There were also reheated rumours doing the rounds about Zurich Financial potentially making a move for Admiral, which – with a price mentioned of 1,950p a pop – climbed 33p to 1,548p.

Takeover talk was swirling around BP too, and it topped the leaderboard after advancing 27.35p to 492.9p, its highest price since May. Last month the oil giant was the subject of gossip that a number of companies were taking a look at it, and yesterday investors returned to the subject following reports that Royal Dutch Shell considered an approach during the Gulf of Mexico oil spill.

Cairn Energy made 11.6p to close on 431.6p, after the oil-and-gas explorer announced that it had contracted two rigs to use for drilling in Greenland.

Ahead of the annual Consumer Electronics Show, which starts tomorrow in Las Vegas, ARM Holdings was driven up 14.6p to 437.9p. The chip maker was helped, according to traders, by the expectation that its technology will be in a number of new products to be unveiled at the tradeshow.

The retailers were going strong, despite it being the first day of the new VAT rate of 20 per cent. Next, which releases its fourth-quarter trading statement today, was lifted 40p to 2,015p, while B&Q-owner Kingfisher was 3.6p better off on 267p.

It was a similar story for their peers on the mid-tier index, with Sports Direct International moving up 5.7p to 166p and Dixons Retail adding 0.98p to 23.9p.

On the FTSE 250, the housebuilders received a boost after it was revealed that the number of mortgages approved in November was up for the first time in months. Although the rise was a modest one, the Bank of England figures galvanised Berkeley to finish near the top of the leaderboard, rising 47.5p to 937.5p. Also up was Barratt Developments, which made 4.4p to close on 93.05p.

Elsewhere Rightmove was boosted by 33p to 812p following Collins Stewart upgrading its advice on the company to "buy" from "hold".

Premier Oil was among the major gainers after the discovery of oil at the Varadero well in the North Sea. Premier, which jumped forwards 68p to 2,018p, is one of a number of energy companies to hold a stake. The other groups include Encore Oil and Nautical Petroleum, which were bumped up 15.5p to 149p and 34p to 430p respectively.

EasyJet climbed 17.6p to 457.6p after the airline confirmed a 15-plane order for Airbus jets and upgraded a previous order to a larger model. The budget airline's chief executive Carolyn McCall said the move "will help deliver EasyJet's strategy of continued profitable growth".

The recent bad run of Desire Petroleum continued with it revealing that it had failed to find oil at its Dawn prospect off the Falkland Islands. As a result, the oil explorer – which is listed on the Alternative Investment Market – dropped more than 25 per cent, falling 12.5p to 35.25p.