Banks and energy leads London up

ondon trading saw a return of confidence, not least after Japan and China affirmed their commitment to buying up European bonds to support the regions sovereign rescue fund.

Banks gained from increased investor confidence, with Barclays (BARC) leading the rally, up 5.53% on the day, with HSBC (HSBCA) up 2.42%, Lloyds (LLOY) up 1.52%, and RBS (RBS) up 1.92%.

Energy stocks also saw gains: BP continued to engage investor confidence, not least after last weeks announcement that the companys liabilities in the US over the Gulf of Mexico oil spill would likely be less than accounted for.

Other energy stocks that saw sharp gains were Atlantic Coal Plc (26.98%), BPC Ltd (15.38%), and Sound Oil Plc (14.29%). Gulf Keystone Petroleum Limited and Cairn Energy PLC also saw strong gains of over 5%.

ARM Holdings saw a 6.99% boost today, as the companys future tied to Microsoft began to settle upon investors. After initially seeing strong gains on the announced partnership, ARM shares had fallen back.

Ones to watch:

Bank stocks remain unstable, with their fate tied to action in Europe. If the European Central Bank can be allowed to push harder with bond buying, expect stocks such as RBS to go up. Due to the current low price of RBS shares, that means potential strong gains for the daring investor.

ARM also looks like a good stock for traditional long-term investing. While Windows mobile devices may have had a shaky start on the market, the success of ARM has been plainly thrown into the same ring as Microsoft. The fact that Microsoft has power to bludgeon its way into market share for mobile devices, this is a stock to watch.

Note of caution:

Were currently riding a high on the FTSE 100, not least after strong overall movement through December. This means we could be due a correction in January across the board, especially if weak economic data for the UK shows were crawling rather than rebounding out of recession. And, as ever, the situation with sovereign debt in Europe remains a serious danger to market sentiment.