Banks lead FTSE higher after Japanese stimulus boost

By Sudip Kar-Gupta LONDON (Reuters) - Britain's top equity index surged on Friday, as unexpected monetary stimulus measures in Japan boosted appetite for stocks around the world. Banks such as Barclays and Royal Bank of Scotland led the way for the blue-chip FTSE 100 <.FTSE> index in terms of percentage gains. Barclays surged 8.2 percent as traders said new leverage ratio rules set out by the Bank of England for the UK's banks -- covering the minimum amount of capital they must hold relative to their exposure to loans that could fall in value -- had not proven as strict as some had expected. Banking sources had expected lenders to have to meet the new targets by 2017 but the Bank of England said they had until 2019 to meet them. "The new rules have come in less harsh than anticipated," said Beaufort Securities sales trader Basil Petrides. Royal Bank of Scotland, which is 80 percent owned by the British government after it had to be rescued during the financial crisis of 2007-2009, also advanced by 6.2 percent. Even though RBS set aside 400 million pounds ($640.2 million) to cover potential fines for manipulating currency markets, traders chose to focus more on a rise in profits that beat market forecasts. "RBS is rising after it revealed a third consecutive quarterly profit, and its core capital ratio is improving," said IG market analyst David Madden. FTSE CONTINUES WINNING STREAK The blue-chip FTSE 100 index <.FTSE> closed up by 1.3 percent at 6,546.47 points -- marking a four-day winning run and extending a rebound from 15-month lows earlier in October. The FTSE's advance tracked a rally in stock markets around the world after the Bank of Japan said it would accelerate purchases of Japanese government bonds as part of a massive stimulus package to boost growth and inflation. Traders said the Japanese move, coupled with expectations British, U.S. and European interest rates will remain at record lows, would continue to drive investors over to equities for the better returns on offer from the stock market. "I would expect interest rates will remain lower for longer. People will be searching for yield and that will underpin the equity markets through their dividend yield," said Novum Securities technical strategist Adrian Slack. According to Thomson Reuters StarMine data, the FTSE 100 has a current dividend yield of 5.4 percent -- offering a better return than a yield of around 2.2 percent on 10-year British government bonds . The FTSE hit a peak of 6,904.86 points at the start of September, its highest since early 2000, but then slumped to 15-month lows in October as weak European economic data knocked back stock markets. The index remains down by around 3 percent since the start of 2014, but Slack expected the FTSE to challenge September's peaks by the end of the year. (1 US dollar = 0.6248 British pound) (Additional reporting by Alistair Smout; Editing by Catherine Evans)