Lloyds shares surged nearly 11% yesterday, as the part state-owned bank reported losses of £4bn but boosted investor hopes by signalling that its bad debts had peaked.

The bank said more than £13bn of its loans had gone bad in the first half of 2009, up from £2.5bn in the same period last year, mostly because of losses at HBOS, the bank it rescued in January.

But Lloyds, which is 43% owned by the taxpayer, heartened the market by saying the worst was over and bad debt charges would be 'significantly lower' in the second half of the year.

The bank also revised its projection of a 15% fall in house prices, saying that it expected them to fall by 7% this year and increase modestly in 2010.

Financial Times