LLOYDS Banking Group surged to its highest level since October 2010 to boost hopes of an imminent sell-off of the taxpayer's stake.

The blue-chip stock rose 8% after it reported better-than-expected half-year profits of £2.1  billion, compared with losses of £456 million a year earlier as it slashed costs and saw a 43% plunge in bad debts.

Lloyds was the stand-out performer in the FTSE 100 Index, which pushed 60.9 points higher to 6682, hitting a level last seen in May.

The Bank of England's decision to leave its quantitative easing programme at £375bn, as well as keep interest rates at 0.5%, came as little surprise in the City.

But the pound gained against the euro after a survey showed Britain's manufacturing sector recorded its best performance for more than two years in July on stronger exports.

The pound was up to €1.15, but lost ground against the dollar to 1.52.

There was a decline of 4.4% for Royal Dutch Shell after the oil giant posted underlying earnings of £3bn in the quarter to June 30, down from £3.8bn.

Chief executive Peter Voser said the performance was "clearly disappointing" and blamed problems in Nigeria, where the company has been the victim of oil theft and gas supply disruption.

Lloyds jumped 5.5p to 74p as it said it would hold talks with regulators in the second half of 2013 over a timetable for reviving shareholder dividend payouts. The 39% state-owned bank has not paid a dividend since mid-2008.

Shares are now more than 10p above the 61p minimum level at which the state would break even on its bailout and about the 73.6p actual average price paid at the time of the bank's £20.3bn Government bailout.

That helped propel fellow semi-nationalised peer Royal Bank of Scotland 15.9p higher to 333.5p, a 5% gain, ahead of its first-half results due out tomorrow.

And BAE Systems rose 0.6% despite the impact of tightening US defence budgets causing a fall in operating profits to £750 million in the six months up to June 30.

Shares were up 2.8p to 448.7p as the defence giant said it was hopeful of a successful outcome to talks with Saudi Arabia over higher prices for a historic contract for 72 Typhoon jets.

It is also working through a £1bn share-buyback programme, which would mean earnings per share rise at least 10% for the full year.

The biggest risers on the FTSE 100 were Lloyds Banking Group up 5.5p to 74p, Fresnillo 55p firmer to 1084p, Anglo American 75p ahead to 1483p and Royal Bank of Scotland 15.9p higher to 333.5p.

The biggest fallers were Aggreko down 137p to 1643p, Royal Dutch Shell 101.5p lower to 2218p, RSA Insurance off 2.1p to 122.9p and Admiral 22p weaker to 1381p.