Abbey shares ended the day 9.7% higher at 536p.

The rise came despite the bank reporting a pre-tax loss of �144m ($233m) during the first half of the year, compared with a profit of �412m during the same period in 2002.

Abbey was dragged into the red because of costs stemming from its unsuccessful venture into wholesale and corporate banking.

Earlier this year, Abbey reported its first ever full-year loss since becoming a listed company and it is now refocusing the business on its core personal finance interests.

Traders also suggested the reforms at Abbey could make it a more attractive takeover target.

"Abbey National is vulnerable to a bid. They've cleared the decks, everything's nice and tidy now," said one trader, adding that a few names had been mentioned in connection with a deal.

'Root and branch' reform

Abbey said its personal finance unit (PFS) made an operating profit of �588m, down from �663m last year.

The fall in profits was mainly caused by an 11% drop in life assurance earnings.

Gross mortgage lending rose by 45% and the bank said credit quality remained strong.

"The transformation of the PFS business requires a fundamental root and branch change, and a substantial amount of progress has been achieved in just 150 days," the bank said.

"The tangible improvements we are making will be visible in 2004."

Sell-off

Abbey's chief executive Luqman Arnold, who took over from Ian Harley last summer, has said the bank aims to sell or wind-down all of its non-core businesses within the next three years.

These included corporate lending and wholesale banking activities such as car, train and plane lease financing.

So far this year, the bank has closed First National Motor Finance, Scottish Provident Ireland and Scottish Mutual International to new business.

Abbey said it had now disposed of �34.3bn worth of non-core assets.

It also said it had achieved an estimated �46m of cost savings in the first half of the year, and had taken actions which should achieve savings of about �125m each year.