Barclays' shares surged 6.5% yesterday after it announced a £4.5bn capital injection from largely foreign investors, but doubts still remain about the level of its exposure to risky investments.

Barclays' shares surged 6.5% yesterday after it announced a £4.5bn capital injection from largely foreign investors, but doubts still remain about the level of its exposure to risky investments.

The injection will see Japanese bank Sumitomo Mitsui pump £500m into the company at a price of 296p per share, a 4.7% discount to its closing price on Tuesday evening.

The rest will be raised through an open offer of shares at 282p per share, a 9.3% discount. Investors will be able to buy three shares for every 14 they own now. But the fundraising is effectively underwritten by a range of external investors as the Qatari Investment Authority and the Emirate's royal family have agreed to invest up to £2.3bn which could give them a combined stake of as much as 10%. Existing investors China Development Bank and Singapore government- backed Temasek have also said they will put in £136m and £200m respectively.

Although the fundraising was £500m more than many observers expected, the bank won plaudits from some in the City because it avoids the expense and risks of a traditional rights issue. Barclays also said it would continue paying cash dividends. The shares closed up 20.25p at 331p.

Chief executive John Varley said half the money would be used to boost its core tier one capital ratio - a key measure of its capital cushion - to 5.25%. It sat at 5.1% at the end of last year. The rest would be used to boost the company's growth, particularly in consumer lending in Asia and investment banking in the US.

The company revealed no further writedowns on assets exposed to the credit crunch, but some concerns remain.

Panmure Gordon analyst Sandy Chen is particularly worried about its exposure to monoline insurers, which stood at £2.8bn at the end of the first quarter of 2008. Monolines guarantee debt repayments and Chen reckons these could suffer from rising loan defaults.

He said: "Amidst the hurly- burly of other banks' write-downs and capital raisings, the pace and organisation of (Barclays') £4.5bn share issue are impressive. Stepping back, though, it seems to us that little has changed in the deteriorating fundamental outlook (particularly with monoline write-downs)."

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "This may well herald the end of the capital raising round for now.

"Whilst it remains premature to call an end to the sub-prime fallout in its entirety, this step will nonetheless provide a level of comfort for jittery investors."

This sentiment was reflected in banking shares. HBOS shares, which have been under pressure as it conducts a £4bn fundraising, closed up 6.3% at 292p, Royal Bank of Scotland gained 4.6% to close at 229.25p, and Alliance & Leicester was up 2.5% at 323.25p. Lloyds TSB, which is rumoured to be considering a bid for Germany's Postbank, was up 0.8% at 328.5p, while HSBC closed up 1.6% at 814.75p. Bradford & Bingley closed down 2.3% at 75.5p.