Lloyds Tsb Shines Through Banking Gloom

Banks - notably HBOS - have been under the cosh as the growing strains on the financial system continue to send investors running for the hills. One exception yesterday was Lloyds TSB, which jumped 6p to 279.75p, making it one of the biggest risers in the FTSE 100. Traders said the bank was supported by talk of Chinese stake building - 130m shares traded yesterday and 100m on Monday against a recent average of around 40m.

But the collapse of investment bank Lehman Brothers, the surprise sale of Merrill Lynch and worries about the state of insurer AIG and savings and loan business Washington Mutual continued to dominate market sentiment, helping send other financial shares tumbling.

HBOS lost a further 50.5p to 182p - a 22% decline - despite the bank issuing a statement to try and calm nerves, saying it had a strong capital base and continued to fund satisfactorily. Analysts were divided on the bank. Collins Stewart issued a buy note, but Citigroup cut its target from 250p to 200p.

News that Libor - the rate at which banks lend to each other - had jumped sharply, particularly for overnight rates, sent a worrying signal. Investors feared that, despite central banks pumping billions of dollars into the system, liquidity was drying up and banks could struggle to meet funding requirements.

Ahead of last night's US interest rate decision, the FTSE 100 slumped 178.6 points to 5025.6, wiping £42bn off leading shares. This marks a two-day fall of nearly 400 points, or some 7.5%. Traders said it was the worst they had seen in 30 years, though it in no way matches the 23%, two-day fall of October 1987.

Royal Bank of Scotland lost 21.4p to 189.1p, Barclays - circling some of Lehman's assets - fell 8p to 308p while Bradford & Bingley, downgraded by Moody's rating agency, slid 1.5p to 30p.

Software and services group Misys fell 16.5p to 137.5p on concern that its takeover of US-based Allscripts, funded by a facility from Lehman, could be under pressure.

Marks & Spencer fell 7.75p to 235.5p and could feel the heat again today. After the market close, Nielsen research showed M&S food sales were lagging those of its competitors. In the past three months, they grew by 0.5% while the grocery market increased 5.8%.

Chipmaker Arm Holdings added 7.5p to 115.5p after an unusual leak. Usually information about future developments from Apple comes from blogs and techie websites, not from the US company's own staff. This week, Wei-han Lien, who joined Apple from PA Semi, put his job specification up on the popular LinkedIn social networking site as "manage Arm CPU architecture team for iPhone".

In other words, Apple's move into making its own chips looks likely to strengthen its relationship with Arm.