Britain's leading shares ended up 1.4 percent on Wednesday as US indexes traded higher as investors on both sides of the Atlantic welcomed the Federal Reserve's reassurance on the world's largest economy. A flurry of results and merger and acquisition activity also helped boost stock prices sending the FTSE 100 85.1 points higher to 6,393.9.
The Fed, after leaving interest rates unchanged on Tuesday, made comments, which soothed investor fears over problems in mortgage and corporate loan markets. Closer to home, the Bank of England's quarterly inflation report suggested one more quarter-point rate rise, to 6 percent, would leave inflation just above the 2 percent target in two years.
"I'm quite surprised to be honest," said David Jones, chief market analyst at CMC Markets. "The fact that the FTSE managed to push through the 6,400 level... a lot of people may well take the view that we're going to see more of an extended recovery."
"This is arguably the most positive the UK index has looked in a good few weeks...this afternoon the FTSE has mainly taken the lead from the US markets." "If we see these gains held onto until tomorrow, we should see further confidence return and more people piling back in, but they have been quite jittery for a few weeks now," Jones added.
On the upside, the insurance sector featured heavily, led by Standard Life as investors covered short positions taken ahead of the company's forecast-beating first-half earnings on Tuesday. Its shares added 4.6 percent. Royal & Sun Alliance Insurance Group shares climbed 3.7 percent after it posted first-half profits above market expectations and said its cost-cutting programme was ahead of schedule.
In M&A activity, Friends Provident tacked on 2.6 percent after saying it was confident of its merger with rival Resolution but also remained a strong standalone prospect, with 1 billion pounds ($2 billion) in excess capital. Resolution was up 0.8 percent.
In other sectors, property stocks swam in positive territory as traders cited a relief rally after the positive indications on interest rates. Among shares, Segro added 5.9 percent, Liberty tacked on 6.5 percent, Land Securities advanced 4.9 percent and British Land gained 2.3 percent.
"It's just the positive sentiment coming out of the Fed...which is coming on the back of the (BoE) thing," one trader said. "The interest rate worries that everyone was worrying about last week are no more - until next week," he added.
Merger and acquisition talk helped push Alliance & Leicester north, with the lender up 6 percent on renewed market talk of bid interest from National Australia Bank Ltd (NAB), traders said.
Neither Alliance & Leicester, Britain's seventh-biggest listed bank, nor NAB was immediately available for comment. In July, dealers said NAB could be casting an eye over A&L, while French rival Credit Agricole was also linked to an approach for the British bank.
Other banks boosted by the positive interest-rate-related sentiment included Royal Bank of Scotland, HSBC, HBOS and Barclays. Britain's largest free-to-air broadcaster, ITV was 3.8 percent higher, after it forecast the first quarterly rise in net advertising revenue for its main ITV1 channel in 2-1/2 years, as it posted a smaller-than-expected fall in first-half profit.
On the downside, British specialty engineering, detection and medical equipment maker Smiths Group lost 2.8 percent after saying it expected a weak dollar to keep headline operating profit for the year ended July 31 level with the preceding year.
The company also said its medical business faced a drop in sales for the year ended on July 31. In commodities, oil prices steadied above $71 a barrel after a surprise drop in US gasoline stocks. BP added 0.7 percent and rival Shell gained 1 percent.
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