LONDON (AP) — Lloyds Banking Group PLC shares rose sharply yesterday after the part-nationalised bank reported a smaller-than-expected loss for the first half of the year and declared its belief that the worst was over.

Lloyds blamed loan losses at Halifax/Bank of Scotland, the company it acquired in a government-backed takeover in January, for record write-downs which resulted in a loss of £3.1 billion ($5.3 billion).

However, the markets had been pricing much worse, with some analysts warning that the bank could lose nearly £5 billion.

As a result, investors cheered the results as well as the assertion from chief executive Eric Daniels that the second half of the year would be better.

Lloyds closed up 10.6 percent at 93.20 pence, on the London Stock Exchange. Other banking stocks rose on the coattails of Lloyds, with Royal Bank of Scotland Group, majority-owned by the government, up 4.44 percent before its own earnings statement tomorrow.

"The spike in the share price in early trade represents a collective sigh of relief that the impairment numbers have peaked according to the bank," said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers.

Lloyds shares have roughly tripled since March amid mounting hopes that the banking crisis may be over after unprecedented support measures from governments and central banks. In Lloyds' case, the government holds a 43.4 percent stake after investors baulked at the burden of the HBOS acquisition, which was cleared by the government when it waived regulatory restraints.

The last time Lloyds shares traded over 100 pence was in January — but even that is way down on the 600 pence levels they were in the autumn of 2007.

As with other banks reporting this week, investors shrugged off higher impairment charges related to risky loans. The bank reported that impairments rose from £2.5 billion to £13.4 billion — 80 percent of that came from what the bank described as riskier loans from HBOS. The majority of HBOS loans "are outside the traditional Lloyds low-risk appetite," the company said.

"The momentum of banking shares has been positive since March and we see little reason why this will reverse in the short term given the market's increased appetite for risk and the improvement in economic figures," said Jonathan Jackson of Killik & Co.