LONDON shares edged higher yesterday as confidence was restored to world markets following last week's bomb blasts in Spain.

The FTSE 100 bounced back from an 18-point fall in early trading to close the session 16 points higher at 4428.9.

The Dow Jones Industrial Average set about regaining much of the ground lost in a disappointing session on Monday, rising nearly 80 points in early trading.

In the UK, the fall in the rate of inflation for last month was in line with expectations and analysts maintained their opinion that higher interest rates were on the way.

Banking stocks propped up the market yesterday, with Royal Bank of Scotland moving 26p higher at 1678p, HBoS climbing 9p to 721p and HSBC advancing 2p to 844p.

But there was no revival by insurer Royal and Sun Alliance, which continued its bad run with shares retreating p to 88p.

Other insurers fared better, with Prudential climbing p to 468p and Aviva ahead 7p at 548p.

There were signs that investors were starting to overcome terrorism fears after British Airways climbed to the top of the Footsie risers board.

Shares, which rose four per cent, or 11p, to 280p, were also given a boost by renewed talk of a tie-up with Spanish airline Iberia.

A lack of major corporate news also contributed to the market treading water, with most of the announcements coming outside the top flight.

Those reporting included engineer Weir Group, which rose ten per cent, or 25p, to 275p after forecasting an improving performance for this year and posting annual profits at the top end of market expectations.

News distributor and airport ground-handling group John Menzies also fared well after signalling a positive start to the year at its aviation section.

Underlying profits were 15 per cent higher, helping shares rise 2p to 369p.

Shares in tile and flooring specialist Topps Tiles rose five per cent after the firm forecast half-year profits significantly ahead of market expectations.

With interim profits expected to be about £15m and like-for-like sales more than 20 per cent ahead of a year ago, shares rose 33p to 706p.

But shares in JD Sports owner John David Group fell 4p to 185p, following the resignation of the executive chairman cred- ited with leading its trading revival.

The group has experienced a challenging ten months that included tackling problems integrating the 209-strong chain of First Sport stores, but it said trading since last month was encouraging.