By Shivani Kumaresan and Amal S

(Reuters) – British shares rose on Monday, led by homebuilders and miners on reports of more domestic fiscal support, while relative stability in bond yields also helped stocks recover from last week’s losses.

The blue-chip FTSE 100 index ended up 1.6%, its best session in two weeks, with homebuilders Persimmon Plc, and Taylor Wimpey plc among the top gainers after a media report that British finance minister Rishi Sunak was expected to announce a mortgage guarantee program as part of the budget.[nL3N2KZ2GR]

“A mortgage guarantee scheme for first-time buyers would be a better, more targeted policy than the blanket stamp duty holiday, to give a helping hand to those who otherwise might not be able to get on the housing ladder,” said Laith Khalaf, financial analyst at AJ Bell.

British Airways-owner IAG led gains in the FTSE 100 as optimism over a 2021 recovery in the travel sector spurred a slew of price target hikes.

The FTSE 100 fell 2.1% last week, snapping three consecutive weeks of gains as expectations of a spike in inflation and rising bond yields rattled sentiment.

But hopes of an economic recovery this year were pushed to the forefront as Sunak geared up to announce more borrowing on top of almost 300 billion pounds ($418 billion) of COVID-19 spending and tax cuts as part of his annual budget statement on Wednesday. [nL5N2KY08C]

British Prime Minister Boris Johnson also said the country’s economy could recover more strongly after the coronavirus pandemic than some “pessimists” had predicted.

The domestically focused mid-cap FTSE 250 index rose 1.5%, even as British manufacturers reported their slowest output growth since May last month due to supply-chain disruptions and rising costs linked to Brexit and COVID-19.

Ladbrokes owner Entain rose 2.3% as it raised its offer for rival sports betting firm Enlabs AB, valuing the Sweden-based company at about 3.7 billion crowns ($440.16 million).

Reach, publisher of Britain’s Daily Mirror and Daily Express, fell 8.6%, after reporting a 12.8% drop in annual profit.

(Reporting by Shivani Kumaresan and Amal S in Bengaluru; Editing by Subhranshu Sahu and Paul Simao)