Abbey pulls out all the stops

Whatever the finance director of Abbey National , Stephen Hester, said to the sales force of investment bank Morgan Stanley on Wednesday night, it must have been dynamite.

In a dull London market the share price of the troubled mortgage lender cruised to the top of the FTSE leaderboard, ending 33.25p higher at 502.5p after 33m shares had changed hands.

A spokesperson for Morgan Stanley insisted Mr Hester, a former investment banker, had said nothing "material" in the presentation that would cause its analysts to change the view they had taken on Abbey National in a research note published on April 9.

However, rival traders were quick to point out that in the note, the Morgan Stanley banking team had turned very bullish on Abbey, upgrading their recommendation to "overweight" from "equal weight" and setting a new target price of 700p, up from 497p.

In the note the analysts said: "The worst fears on wholesale debts are, we believe, unlikely to be realised. Moreover, solvency fears on bancassurance may be overdone; the closure of the with-profit fund combined with the use of hedging limits the downside here in our view."

Abbey is due to publish interim results on June 18.

Elsewhere in the banking sector, US income investors piled into Lloyds TSB , up 25.25p at 625.25p, on the back of speculation that Lloyds had appointed Deutsche Bank to advise on the sale of its New Zealand arm - the National Bank of New Zealand.

"The thinking on the other side of the Atlantic seems to be if Lloyds sells this business for the rumoured $4bn [£2.3bn], they will have enough cash to pay the dividend for the next couple of years or so," one senior market man said.

Analysts estimate it cost Lloyds £1.9bn to pay out its dividend of 34.5p a share last year. Lloyds is yielding 7.6% at present.

Supported by the strong gains of Abbey and Lloyds and another good performance from Vodafone , rising 3.5p to 130.25p, leading shares finished higher for a third straight session. The FTSE 100 index finished up 11.7 points at 4,083.6, close to an important technical buy signal.

"If things continue as they are, the FTSE 100 will soon form a golden cross [the point where the 50-day moving average crosses the 200-day moving average]. If this happens, money should flood into the market from technical trading programmes," said Nick Batsford, technical analyst at Tradition Asiel Securities.

The FTSE 250 index rose 39 points to 4,785.1, while the FTSE Small Cap index gained 13.4 points to 2,017.2. Turnover topped 2.85bn shares, swollen by heavy trading in Xstrata's nil-paid shares, off 2p at 109p, after 40% shareholder Glencore dumped its holding of 151m shares at 192p each.

Traders said there was nothing sinister in the move. Glencore has not been able to take up its nil-paid rights - issued to finance Xstrata's £1.4bn acquisition of Australia's MIM Holdings - because of financing constraints. As a result, it has warehoused the stock with CSFB until it can afford to buy them back. In the interim, if the shares lose any value, Xstrata is obliged to make up the shortfall.

In the bond market gilts rebounded, with the yield on the benchmark 10-year gilt easing 0.07% to 4.05%.

Among the blue chips, speciality chemical group ICI was marked 4p lower at 136.5p after CSFB downgraded to "underweight", citing concerns about valuation and the commitment of its new manage ment team to the company's old strategy.

Lower down the index, there was a buzz around Austin Reed - up 1.5p to 150p - as traders spotted that one of the investment banks which makes a market in the group's shares had stopped doing so.

Dealers said there were a number of reasons why an investment bank might decide to do this, but the most likely was because it had started advising a potential bidder and therefore had a conflict of interest. Earlier this month the troubled clothing company terminated takeover discussions with a number of parties, claiming the interests of shareholders were best served by remaining independent.

One of the bidders was the investment vehicle of Jonathan Rowland - which indicated that subject to certain conditions, it was prepared to pay 158p a share for the company. Austin Reed's net asset value is 175p a share.

On the AIM, TradingSports , which provides the technology for person to person betting exchanges, made waves on its first day of trading. Placed at 115p by stockbroker Evolution Beeson Gregory, the shares ended the day at 130.5p.

According to market whispers TradingSports has been talking to Attheraces , the company which owns the media rights to UK horse racing.