FTSE closes at 5319.2

Updated 17.29 Tue Jul 29 2008

Keywords: London, stock market, FTSE

After a slow start the FTSE 100 Index eventually rallied to close a modest 6.6 points higher at 5319.2.

A potential merger between British Airways and Spanish airline Iberia cheered investors despite wider gloom over the banking sector.

Winners: Compass up 21.5p at 363.75p, British Airways ahead 14p at 248.5p, Wolseley up 17.75p at 337p, and Marks & Spencer ahead 12.75p at 262.75p

BA leapt almost 6 per cent or 14p to 248.5p as news of the proposed all-share tie-up raised hopes for further consolidation activity in the beleaguered aviation industry.

But banks accounted for three of the top four FTSE fallers after US investment bank Merrill Lynch wrote off another £3 billion and announced a new fundraising move, prompting nerves that UK banks could also have to raise more capital.

Barclays closed 14p down at 324.75, closely followed by Royal Bank of Scotland - off 5.5p to 200.75p.

Halifax Bank of Scotland was the worst FTSE performer of the day, shedding 14.75p to 272.75p, or 5 per cent.

Further advances for the wider market were hampered by late losses for the heavily-weighted energy sector despite better than expected second-quarter profits from BP.

Stripping out exceptional losses, the group's £4.3 billion profits between April and June shattered City forecasts, but shares finished 12.75p lower at 506.75p as crude oil prices eased on concerns over US demand.

Royal Dutch Shell, which is due to post figures on Thursday, lost 33p to 1785. Among the prospectors, Cairn Energy slipped 35p to 2654p, although Tullow Oil was 2.5p better at 750p

Heavyweight miners had better fortunes, with Vedanta Resources adding 37p to 1889p - a gain of 2 per cent - as first quarter results showed a 56 per cent rise in iron ore production to a record 4.6 million tonnes.

Several of its peers bolstered the top flight including Antofagasta up 8.5p to 549.5p, Anglo American up 50p to 2800p and Xstrata which gained 76p to 3435p.

Other gainers included foods group Compass, which added a further 21.5p to 363.75p after a strong trading update on Monday, making it the FTSE's leading riser.

Winners: Compass up 21.5p at 363.75p, British Airways ahead 14p at 248.5p, Wolseley up 17.75p at 337p, and Marks & Spencer ahead 12.75p at 262.75p.

Losers: HBOS down 14.75p at 272.75p, Barclays off 14p at 324.75p, TUI Travel down 6p at 192.1p, and RBS, which ended the day 5.5p lower at 200.75p.