Interest rate hike heartens global traders

Stock markets in London bounced back from a week of malaise yesterday after the Federal Reserve and the Bank of England whispered encouragement into the ears of global traders.

Financial stocks, including some of the UK’S biggest banks, were among the top risers thanks to a spike at midday as the Bank announced a surprise interest rate hike (see opposite page).

The Bank’s decision makers voted overwhelmingly to more than double rates to 0.25%, from an earlier record low.

The FTSE 100 rose 89.86 points to 7260.61, a 1.3% increase compared with Wednesday’s close.

“The surprise decision by the Bank of England to raise interest rates has built on this narrative, and while the timing is curious, the decision has helped financials to post decent gains, with the likes of Lloyds Banking Group, Barclays and HSBC posting decent gains as yields moved higher,” said CMC Markets analyst Michael Hewson.

“A weaker US dollar has also helped boost metals prices, which in turn is helping to lift the basic resource sector, led by Rio Tinto and Antofagasta.”

The news that the chancellor is meeting hospitality and leisure businesses also helped airlines, Mr Hewson said.

In the US the S&P 500 index was trading up by 0.1% when markets were closing in Europe, and the Dow Jones was up by 0.4%. In Germany the Dax closed up 1% and Paris’s Cac 40 rose 1.1%.

In currency markets, sterling dropped 0.1% against rivals in Europe and the US. By the end of trading in London one pound could buy 1.3323 dollars or 1.1778 euros.