Banks, weaker pound help FTSE 100 rise; Dr. Martens hits record low

London's FTSE 100 rose on Thursday, as a weaker pound and strong gains in banking stocks outweighed worries over interest rate hikes, while boot maker Dr. Martens dropped to a record low and pulled down British mid-caps.

London's FTSE 100 rose on Thursday, as a weaker pound and strong gains in banking stocks outweighed worries over interest rate hikes, while boot maker Dr. Martens dropped to a record low and pulled down British mid-caps. The blue-chip FTSE 100 index was up 0.2%. Banks HSBC Holdings, Standard Chartered, Barclays and Natwest Group tracked bond yields higher and were the top gainers on the index.

UK's two-year yields jumped to their highest since 2011 and short-term U.S. yields soared, after the Fed signalled a March rate hike while investors priced in another increase by the Bank of England next week. A weaker pound helped dollar-earning companies like British American Tobacco, Imperial Brands and Johnnie Walker whisky maker Diageo, which also gained due to its strong first-half sales.

"The UK markets are well insulated right now due to no tech stock exposure, a sector which drops when interest rates rise, and while broader market sentiment is diminishing, UK will continue to outperform," said Craig Erlam, a senior market analyst at Oanda. The FTSE 100 has steadily outperformed Europe's STOXX 600 and the S&P 500, due to a higher weightage of banking shares, which tend to gain in a high-interest rate environment, and as elevated commodity prices supported energy and mining stocks.

"But this risk aversion that we see in global markets is not going to last long as we see traders desperate to buy in at current levels," Erlam said. The domestically focussed mid-cap index fell 0.6%, with boot maker Dr. Martens falling the most as its revenue growth slowed in the third quarter, knocking its share price to record lows.

Meanwhile, security and cleaning services provider Mitie Group was the top mid-cap gainer with a 4.5% rise, after it raised its annual profit outlook for the second time in four months.