Short sellers will be allowed to target financial stocks once again after the City watchdog said that it would relax the contentious ban it introduced during the market chaos of September.

The Financial Services Authority said yesterday that it would not renew the restrictions, when they expire on January 16, but added that it would still require those shorting financial stocks to continue disclosing their positions - at least until the end of June. The FSA added that it retained the right to reintroduce the ban without consultation "if necessary".