Rate-sensitive banks prove the pick of the blue chips

For the second day running investors in the City seized on US data suggesting interest rates would be left on hold to push equity prices higher.

On Wednesday a weaker-than-expected Chicago purchasing managers' report encouraged optimism about the Federal Reserve's next meeting in three weeks.

Yesterday a US national purchasing managers index showing the economy grew at a "very slow rate" in July boosted bond prices and sent Wall Street over 50 points higher in early trade. The Footsie took its cue and built on early gains to close 31.2 points higher at 3,734.4, just off the session's high.

Banks, seen as the most rate-sensitive sector, were the biggest beneficiaries. Among blue chips, they accounted for four of the top half-dozen best performers.

National Westminster Bank led the way, adding 20p to 645p on further consideration of its interims results. Dealers spoke of several short positions still being squeezed after the bank spent pounds 450m buying back its own shares at 426p on Tuesday.

Also in demand were HSBC Holdings, 27.5p better at 1,091p ahead of interim results on Monday; Royal Bank of Scotland, up 12p to 481p on news it is buying SBC Warburg's custody and investor services division; and Abbey National, 12.5p higher at 584p.

Elsewhere in the sector Bank of Scotland gained 2.5p to 230.5p after BZW completedd the sale of the bank's stake in Standard Life.

Zeneca had another healthy session, rising 27p to 1418p after announcing it had completed the sale of its textile colours business to Germany's BASF. The pharmaceuticals team at BZW was also said to have made positive noises. Thorn EMI continued to attract bid speculation with MCA, part of Canadian entertainment giant Seagram, tipped to go for EMI's music division. The shares rose 25p to 1,778p for a two-day gain of 71p.

J Sainsbury was 6.5p better at 382p after announcing plans to buy the remaining 25 per cent of DIY operation Homebase from GIB Group for pounds 65m.

Yorkshire Electricity, up 26p at 707p, joined NatWest and Thames Water on the list of recent converts to the share buy-back craze. It is seeking shareholder approval to buy back 10 per cent of its equity. Similar hopes also sustained United Utilities, up 9p at 573p.

Shell dipped 11p to 911.5p, after touching a low of 897p, as analysts looked to trim forecasts on the back of disappointing second-quarter results in the chemicals division.

But Lasmo recovered to close 2p firmer at 181p after falling in early trade on news of results at the bottom end of expectations and a warning that second-half results would be hit by higher exploration and finance charges.

Hanson was in the dog-house again, dropping 4.5p to 155.75p after confirming it was to close a UK chemical plant and delay expansion plans.

More activity on the buses where FirstBus, the market leader, issued an upbeat trading statement at its annual meeting. The shares motored ahead 23p to 160p. National Express rose in sympathy by 20p to 462 but Stagecoach relinquished 10.5p to 531p after adverse comment about yesterday's pounds 476m acquisition of rolling stock leasing company Porterbrook.

Exhibitions group Blenheim advanced 9p to 434p after confirming it was in bid talks. Reed has replaced United News & Media as its most likely suitor.

Trafficmaster got the green light for a ground-breaking deal to supply 100,000 of its jam-busting driver information units to Vauxhall. These will be fitted as standard in Vauxhall cars from next month. Trafficmaster's Oracle system works by using radio beacons at every motorway junction and approximately two-mile intervals along the motorway network. Real- time traffic flow information is transmitted directly to the vehicle in which the equipment is installed via the car's own audio system using voice-based technology. Further orders are expected later this year. The shares accelerated 34p to 353p.

Renewed US buying gave added spice to Pizza Express. Shares in the restaurant group rose 19p to 418p, just shy of their all-time high, after Janus Capital increased its stake to 17.2 per cent after picking up 977,000 shares.

Shoprite, now little more than a shell company, nudged a ha'penny higher at 17.5p. It was forced into a fire sale of its supermarket chain to Kwik Save two years ago, but the once high-flying shares have recovered from a low of 6p.

TAKING STOCK

Bluebird Toys, as high as 386p last year, slipped 9p to 219p amid concerns about current trading. Falling profits, fading bid hopes and a series of directors' share sales have affected sentiment, though shareholders were told at their annual meeting in May to expect the second half to be "much improved" on the same period last year. Bluebird is replacing its Mighty Max range of toys with Mickey Mouse and Batman sets.

oShares in AIM-listed biotech tiddler Stanford Rook fell 25p to 323p. There are renewed worries in the City that Phase III trials of SRL172, which may help victims of tuberculosis and is Stanford's only product, may disappoint. Results are due to be released later this year. The shares were as high as 600p in March.