FTSE in modest gains as Italy and Greece fight to win back market credibility

Banks led modest FTSE 100 gains in early trading as Greece and Italy fought to convince investors that they could fight back from the economic abyss.

Italy, the latest Eurozone nation to come under pressure in the bond market, moved closer to a national unity government, while its treasury managed to sell one-year bills at a yield below seven per cent - the threshold investors believe renders its debt burden unsustainable.

Meanwhile Greece's prime minister designate Lucas Papademos, a former European Central Bank deputy, will name a new crisis cabinet later today and put into motion even deeper austerity measures to get the beleaguered country on the recovery path.

But the Eurozone was also facing mounting pressure on France and Spain as the yield on their bonds rose. France was also hit by a blunder from ratings agency Standard & Poor's which sent out an email mistakenly saying that it had downgraded France.

In London RBS was up 2.9 per cent and Lloyds 2.5 per cent while Barclays edged up by 1.8 per cent.

The bank said Barclays Private Equity is being bought out by its own management team and will be relaunched as Equistone Partners Europe, it said, adding that the value of the gross assets being sold off was expected to be around £45m.

Investment bank Schroders was also one of the highest climbers on the index, up 3.6 per cent.

British Airways and Iberia owner IAG, up 4.5 per cent after raising growth and cost savings targets and saying it expected an operating profit of around £1bn in 2015.

Engineer Rolls-Royce was up 1.9 per cent after an upbeat market update saying that it was ahead of its 2011 profit target.

There were few significant fallers on the index although BP slipped by 1.3 per cent.

BG Group fell 1.2 per cent with traders citing a read across from Portuguese oil company Galp, whose shares slumped after it sold a stake in its Brazilian unit for $3.5bn (£2.1bn).

In Asia the Nikkei closed up 0.16 per cent up and the Hang Seng 0.9 per cent.

Meanwhile figures from the Office for National Statistics showed that output in the construction industry fell by one per cent in the third quarter compared to the same period last year. Output was 0.2 per cent down from the second quarter.