Banks drive gains on FTSE 100, BoE move awaited

A rebound in bank stocks after the U.S. Federal Reserve's guarded stance on future interest rate cuts lifted London's FTSE 100 on Thursday, with investors shifting focus to the Bank of England's policy decision due later in the day.

The blue-chip index erased its early losses and was up 0.4% at 0845 GMT. The FTSE 250 index was up 0.2%. A sub-index of banks broke its three-day losing streak with a 1.2% rise. CMC Markets analyst Michael Hewson said the Fed's signal to hold back on further cuts was probably not priced in.

"The last thing that banks in particular want is further aggressive easing from central banks," Hewson said. Central banks around the world have been loosening monetary policy to stem a slowdown in economic growth. The Fed cut rates for the second time this year but set a higher bar to any further reductions.

The BoE has said that underlying inflation pressures meant it was still likely to need to raise interest rates over the medium term, assuming there is no major Brexit disruption and a recovery in global economy. "The Bank of England will be very happy to just say we are not going to change rates for the time being ... there is no reason to do anything ahead of the Oct. 31 Brexit deadline," Hewson said.

Among stocks, Next skidded 4.2% after it flagged that the first few weeks of the Autumn season were disappointing and Diageo slipped 1.4% after it said it was "not immune" to changes in global trade policies as it laid out targets for the year. JD Sports was also among biggest losers with a 2.5% drop after the British competition regulator announced its intention to refer the retailer's deal to buy Footasylum to a phase-2 investigation.

British Airways owner IAG gained 2% after a rating upgrade by Morgan Stanley, while auto catalyst maker Johnson Matthey rose by the same level following forward-looking comments. Midcap constituent IG Group jumped 8% as it said client numbers grew thanks to favourable market conditions in August, while small cap Kier Group lost 10.4% after the contractor posted an annual loss.

Insurance services firm Charles Taylor shot up by 37% with its share price topping the 315 pence a share go-private deal it has agreed with a firm backed by private equity firm Lovell Minnick Partners.

Also Read: Sterling steady as investors await clarity on Brexit