Shares in UK banks rose early on Monday on hopes of higher dividend and after the government decided to nationalise stricken mortgage lender Northern Rock.

"This is slightly positive for the sector as the expected managed decline in the Northern Rock balance sheet should create less competitive mortgage market conditions," Robert Sage, Bear Stearns analyst, said in a note.

Barclays advanced 4.4 percent, both HBOS and Royal Bank of Scotland climbed 3.9 percent, Lloyds TSB gained 3.5 percent, Standard Chartered added 3.2 percent and HSBC rose 1.9 percent.

Barclays and Lloyds were also aided by a Sunday Times report, saying that the two banks would likely lift their dividend payments when they report their results this week.

"There was a Sunday Times article talking about Barclays and Lloyds increasing their dividend and saying results would be fine," a trader said.