HBOS ended the day the FTSE 100's biggest gainer - up 17% - as the blue-chip index closed 85.8 points higher at 5449.1.
Rumours that Spanish bank BBVA was interested in HBOS sent its shares up 44p to 305p, well above the 275p level at which its disastrous rights issue was priced.
Only 8% of investors in HBOS took the opportunity to buy new shares, the company revealed earlier this week.
So today's gain will have relieved the cash call's underwriters, Morgan Stanley and Dresdner Kleinwort.
The UK's other high street banks were major gainers as the browbeaten sector recovered.
Barclays was the FTSE 100's third biggest percentage gainer - up 12% or 37.25p to 352p.
Royal Bank of Scotland and Lloyds TSB were next on the list: RBS was up 22.25p to close at 221.25p, while Lloyds TSB rose 26.5p to 320p.
Shares in insurance group Friends Provident increased by 13% after a note from Goldman Sachs listing it as a "conviction buy". "We believe [Friends Provident] offers superior value, with the potential for tangible book value growth through disposals," Goldman said.
Friends shares were up 10.5p to 90.6p. Today's fallers were overwhelmingly from the mining and energy sectors as they suffered from declining metals and oil prices.
