THE FTSE 100 Index staged a mini-fightback yesterday on the back of gains made by banking and mining stocks, but it was still more than 100 points down on the week.

The FTSE took a pasting on Wednesday and Thursday, dropping 188 points in two days, amid fears that China would increase its interest rates.

But it rebounded 28.3 points to 5896.3 yesterday as fears about overheating in Asia began to subside.

Despite the rise, the index was still well below last Friday’s close of 6002.1.

Economists are predicting an imminent interest rate hike in China, as the country battles with stubbornly- high inflation – a move that would choke Chinese demand for commodities.

The speculation saw commodity stocks drop, while fears over the eurozone debt crisis and a weaker-than-expected show from US banks hit financials.

But these concerns eased yesterday as investors shrugged off the weak sentiment and were boosted by a strong earnings report from US bank Morgan Stanley.

Royal Bank of Scotland rose more than six per cent after the Financial Times reported the part-nationalised bank and Treasury officials were examining ways in which the bank could secure an early exit from the Government’s asset protection scheme.

Shares were up 2.8p at 44.9p.

Morgan’s 80 per cent jump in fourth quarter profits also lifted the sector, with Lloyds up 0.6p at 67.4p, although Barclays was down 2.4p at 300.9p.

Investors shrugged off official figures from the Office for National Statistics, which revealed retail sales volumes declined 0.8 per cent last month – the worst December on record. Retailers saw gains despite the report, with B&Q owner Kingfisher up 3.2p at 267.4p, Marks & Spencer ahead 1.1p at 368p and Primark owner Associated British Foods adding 7p to 1086p.