A worker shelters from the rain as he passes the London Stock Exchange in the City of London
A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008.

Shares in British banks recovered in morning trading on the FTSE 100 following a dismal performance yesterday which saw the FTSE 100 drop below 5,000.

Investors have been on edge for weeks thanks to a looming sovereign debt crisis in Europe, which has already led to tough austerity measures and lethal riots in Greece and is now looming over Spain after the country's central bank nationalised CajaSur.

As if things were not bad enough, tensions have been mounting in East Asia between North Korea and South Korea after the South claimed to have evidence proving the North was behind the sinking of the ship Cheonan, which killed 46 sailors.

The North has denied involvement, despite the evidence and a history of acts of aggression dating back to the Korean war of 1950-53. In response the North has cut ties with the South and has threatened retaliation if attacked.

Yesterday banking shares dropped significantly by over seven per cent in some cases, helping to send the FTSE 100 below 5,000.

Today however investors took advantage of the low prices, helping a recovery in share prices.

By 11:31 shares in Lloyds Banking Group were up 1.85 per cent to 52.96 pence per share, RBS shares increased 4.85 per cent to 44.77 pence per share, Barclays shares rose 4.25 per cent to 295.85 pence per share while HSBC shares climbed 0.89 per cent to 625.00 pence per share.

Overall the FTSE 100 was up 1.57 per cent to 5,018.69.