By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- The U.K.'s benchmark stock index held on
to gains on Thursday, breaking a three-day losing streak, after the
Bank of England made no changes to its interest rate or asset
purchases as was expected.
The FTSE 100 index rallied 1.5% to close at 6,430.49, posting
the biggest daily percentage gain in three months. The benchmark
closed at the lowest level since July 3 on Wednesday, as
uncertainty about the U.S. government shutdown and borrowing
situation in the U.S. hampered sentiment.
On Thursday, however, stock markets globally were more
optimistic, on signs Republicans and Democrats are closer to
agreeing a compromise to reopen government and raise the U.S.'s
debt ceiling to avoid a default.
In London, the Bank of England was in the spotlight after the
Monetary Policy Committee left its key lending rate at a record low
of 0.5% and made no changes to its 375-billion-pound ($598 billion)
asset purchases.
The BOE in August tied the interest rate to the level of U.K.
unemployment, saying a rate hike is unlikely before the joblessness
level falls below 7%. The bank forecast this wouldn't happen until
2016, but with recent upbeat data and increasing signs the U.K.
economy is recovering, market participants speculate a rate hike is
on the cards before that.
"This decision [on Thursday], of course, was no surprise. With
the positive momentum of the economy making more QE unlikely, the
key question surrounds the possible timing of the first
interest-rate hike," said Philip Shaw, chief economist at Investec
Securities, in a note.
"Our own view is that rates will start a slow climb in Q3 2015,
while the yield curve is currently pricing in a move six months
earlier," he added.
The pound (GBPUSD) traded at $1.5970, up from $1.5953 late
Wednesday.
Banks were among notable movers in the FTSE 100 on Thursday.
Royal Bank of Scotland Group PLC (RBS) climbed 4.1%, Barclays PLC
(BCS) gained 2.5%, Lloyds Banking Group PLC (LYG) added 2.7%, and
sector heavyweight HSBC Holdings PLC (HBC) put on 1.4%.
Resource firms were also higher as most metals prices and oil
prices rose. Among miners, shares of Glencore Xstrata PLC (GLCNF)
added 1.3%, Antofagasta PLC picked up 2.6% and Rio Tinto PLC (RIO)
rose 1.9%.
Oil major Royal Dutch Shell PLC (RDSB) gained 1.3%, and BP PLC
(BP) added 0.9%.
BAE Systems PLC (BAESY) climbed 2.4% after the aerospace and
defense firm said trading between July 1 and Oct. 9 had been in
line with management expectations.
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