LONDON’S blue chip share index rallied higher again yesterday thanks to hopes that the worst of the recession may be over.

The FTSE 100 Index soared through the 4400 level at one stage, but failed to hold its head above the mark after bank stocks gave back some of their recent gains.

A lacklustre start to trading on Wall Street also pulled the FTSE 100 back, although not enough to prevent it closing at another four-month high, up 59.6 points at 4396.5.

Stocks were buoyed by an air of optimism over the economy as more signs suggested an improving picture, this time from the UK services sector.

But financial stocks had a mixed session as investors awaited the outcome of US bank stress testing and as worries continued that some banks may need more capital than previously thought.

Speculation about what the results of the US government’s stress tests might reveal today has intensified after it was reported that regulators have warned Bank of America it will need to raise about $35bn (£23.3bn).

Barclays was one of the top flight’s biggest fallers, down more than three per cent, after cautious assessments from analysts.

Shares were down 10p to 288p.

Lloyds Banking Group was also in the red after similar downbeat broker comments, losing 7.9p to 113.2p. But HSBC climbed the leaders’ board with a four per cent rise, up 21.5p at 539p after an analyst upgrade.

Meanwhile, Standard Chartered was one of the top risers, up 106p at 1256p, while among insurers Legal & General added 5.4p to 65.4p and Aviva rose 11p to 338.5p. The Norwich Union owner improved after it announced a new reattribution offer to one million policyholders in two of its with-profits funds.