Lloyds says to return to profit this year

Lloyds, which sank 6.3 billion pounds into the red last year after being hit by a steep jump in bad loans "believes that it will be profitable on a combined basis in 2010," it said in an unscheduled trading statement.

The bank said the improved outlook reflected "good" overall trading in the first ten weeks of 2010, with bad debts "trending at lower levels than anticipated," and costs falling compared with the same period last year.

Lloyds shares were up 10 percent at 61 pence by 1 p.m., making them the top riser in the FTSE 100 share index, and bringing them closer to the average 74 pence level at which the British state bought a 41 percent stake in the lender to prop it up after the 2008 banking crisis.

Analysts said news bad debts were falling faster than hoped in 2010 would reassure after a previously-flagged drop in impairments during the second half of last year fell short of some investors' expectations.

"Having disappointed a little bit with the full-year results, this kind of puts them back on track," said Simon Willis, banks analyst at stockbroker NCB.

SHARE SALE

Lloyds is currently forecast to make a 300 million pound loss this year, analysts said, citing the bank's own calculation of consensus expectations.

Lloyds' stronger performance and rising share price make it more likely the government will try to sell part of its stake in the bank before an election expected to take place in May, Execution Noble analyst Joseph Dickerson said.

"The stock should be strong today and we anticipate follow through, but would flag the prospect of a pre-election placing in the stock," he wrote in a note.