Banks propel FTSE upwards after interest rates decision

BANKS helped Britain’s top shares rise yesterday after the Bank of England kept interest rates and quantitative easing measures unchanged, while US jobs figures raised hopes that a recovery was under way.

The FTSE 100 was up 13.43 points, or 0.2 per cent, at 5,807.96, eradicating Wednesday’s losses, though gains were muted, with some traders speculating that a tightening of monetary policy in China could be imminent.

The FTSE 250 gained 44.69 points, or 0.4 per cent, to close at 11,263.38, while the FTSE 350 added 7.79 points to end up 0.25 per cent at 3,076.12.

“Risk appetite has been tempered somewhat ahead of the release of some important
Chinese [trade] data tonight,” said Michael Hewson, market analyst at CMC Markets.

“This has led to some caution that the Chinese may act on monetary policy ahead of the weekend.”

Barclays, up 4.5 per cent, led banks higher, but Standard Chartered shed 3.6 per cent after issuing a trading update.

The Bank’s Monetary Policy Committee voted to keep interest rates at a record low of 0.5 per cent and total asset purchases at £200bn, shrugging off concerns over rising inflation and the UK’s anaemic growth outlook.

New US claims for unemployment benefits fell more than expected last week, and the four-week moving average slipped to a fresh two-year low, bolstering recovery hopes.

In London, mining shares and energy stocks underpinned blue-chip gains.

Oil major BG Group rose 3.6 per cent as it said it expected very low unit costs for the initial development of the Tupi and Guara fields in the Santos Basin, offshore Brazil.

Elsewhere, Cobham added 3.7 per cent after the defence contractor's demotion to the FTSE 250 was confirmed, to be replaced by engineering group IMI.

Equities look set to remain a preferred asset class into 2011.

“[Equity] valuations will remain more or less flat, but equities will pay you 3 or 4 percent in dividends,” said portfolio strategist Johannes Jooste of Merrill Lynch Wealth Management, part of Bank of America.

“Dividend yield will remain a powerful driver of market performance in the first half of 2011.”

The UK blue-chip index carried a 12-month forward price-to-earnings multiple of 9.8, Thomson Reuters Datastream showed.

Analysts at Credit Suisse argued in a note that some equities were safer than bonds, adding “bonds outflows (four-week moving average) are negative for the first time since 2009, while equity inflows (3-month moving average) are their highest since 2006”.

On the downside, traders said sentiment among retailers was hit after first-half results from HMV, which highlighted the cold snap in Britain was undermining Christmas trading.

Morrison Supermarket shed one per cent, while Next and Marks & Spencer fell 2.4 and two per cent respectively.