UK stocks off record highs as policymaker votes for rate hike

By Danilo Masoni and Kit Rees
FILE PHOTO:A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008. REUTERS/Toby Melville/File Photo

By Danilo Masoni and Kit Rees

LONDON (Reuters) - UK shares rose to new record highs on Thursday, helped by a surge in commodities-related stocks, but pared some gains after a Bank of England (BoE) policymaker voted for a rate hike.

The blue chip FTSE 100 index rose 0.6 percent, still ending at its highest level on record, while mid caps gained 0.3 percent, ending below the all-time high hit during the session.

Both indexes pared some gains after outgoing BoE policymaker Kristin Forbes unexpectedly voted for a rise in interest rates and others signalled it would not take much for them to follow suit.

"The fact that some members of the MPC (BoE's Monetary Policy Committee) may be inclined to agree with Forbes suggests a hawkish tilt that few were expecting," said Neil Wilson, market analyst at ETX Capital.

British stocks joined in a broader rally among major European indexes, which gained after Dutch Prime Minister Mark Rutte won an election victory in the Netherlands, fighting off a challenge from far-right rival Geert Wilders.

Likewise, an indication from the U.S. Federal Reserve that there would be no pick-up in the pace of monetary tightening after a widely expected rate hike on Wednesday also helped by sending the dollar lower.

Mining stocks in particular were boosted by a weaker dollar, which makes the underlying commodity cheaper for holders of foreign currency.

Mining stocks rose 4.2 percent and added the most to the FTSE 100, around 22 points, followed by energy stocks. Which added around 10 points. Royal Dutch Shell and BP rose 1 percent and 0.7 percent respectively.

Shares in Anglo American surged 8.6 percent after Indian billionaire Anil Agarwal said he would buy a stake of up to 2 billion pounds ($2.5 billion) in the global miner.

Precious metals miners Fresnillo, Polymetal International and Randgold Resources were particularly in demand after the U.S. Federal Reserve's more dovish tone, saying it would stick to a gradual path of interest rate rises.

"Precious metals ... have suffered from the more aggressive interest rate outlook," Yuen Low, analyst at Shore Capital, said. "For as long as the Fed continues to emphasise a gradual raising of interest rates, we expect interest rate hikes to lag inflation growth, resulting in an interest rate-inflation ‘differential’ that should be mildly positive for precious metals."

Among the fallers, companies trading ex-dividend weighed, with Direct Line down 3.6 percent.

Likewise, a number of ratings downgrades also put pressure on stocks, with drugmaker Hikma down 4.7 percent after JP Morgan cut the stock to "neutral" from "overweight", and Merlin Entertainments down 2.9 percent following a Berenberg downgrade to "sell" from "hold".

(Reporting by Danilo Masoni and Kit Rees; Editing by Alison Williams and Mark Potter)

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