LONDON blue chips recovered from earlier losses to close on positive ground yesterday as Wall Street investors breathed a huge sigh of relief after much-awaited April employment statistics bolstered market hopes for steady US interest rates in the near term.

The Dow surged by more than 100 points in the first two hours of dealing and was around 90 points ahead when the UK exchange closed.

London's benchmark FTSE-100 index ended another seesaw session up 31.8 points at 5969.8, having earlier been down nearly 40 points at one stage.

Second-line shares, much in demand this week, finished with healthy gains. The FTSE-250 index, which lists midcap issues, was 38.4 points firmer at 5741.1.

The American jobs report also gave gilts a lift with June futures shrugging off Thursday's losses to settle three-sixteenths-of-a-point higher at 108-7/16.

There was more good news on the foreign exchange markets for British exporters and manufacturers as the pound continued this week's downward trend against the German mark and the dollar.

Sterling traded below DM2.90 for most of the day - a four-and-a-half month low. The pound was worth around $1.6376 and the trade-weighted index, which measures sterling's strength against a basket of other currencies, fell 0.40 to 103.

The City was gripped by the Rolls-Royce cars saga after Thursday night's #430m offer by Volkswagen. The move by the giant German firm, which trumped a previous offer from rival BMW, clearly caught the Square Mile on the hop.

The day's star stock was Vickers, the parent company of Rolls-Royce, which gained more than 4% after the VW bid, adding 10p to 245.5p.

Despite the fall in sterling against both the mark and the dollar, the results for exporters were mixed.

Defence and engineering giant GEC dropped 4.75p to 521.75p and armoured vehicles and helicopter-maker GKN slowed by 29p to 1746p, while Smiths Industries was up 11.5p to 965p and Siebe rose 36p to 1498p.

Aero-engines-maker Rolls-Royce, another major exporter, failed to make any gains despite a bullish pledge to the market that it would protect its brand name from German car makers. It fell 3p to 295p. Although the engine manufacturer no longer owns the car firm, it still retains rights to the Rolls-Royce name.

Overnight gains on the Asian bourses left Far-East-linked banks HSBC 29p up at 1803p and Standard Chartered 20p stronger at 887p, while Cable & Wireless, which also has Asian connections, firmed 3p to 644p.

Several domestic bank stocks were also in demand, pulling up the Footsie with their massive equity muscle, as Halifax gained 12.5p to 791p and Lloyds TSB was lifted 9.5p to 902.5p.

Royal Bank of Scotland, which announced its results on Thursday, continued to bask in the City's approval, adding 9p to 997p, and Barclays was up 12p to 1770p after earlier falls. Bank of Scotland was 8p off at 707p.