Britain's leading shares ended up on Thursday during a choppy trading session as both the Bank of England (BoE) and the European Central Bank (ECB) held rates steady. The FTSE 100 closed 42.6 points, or 0.7 percent higher at 6,313.3 after hitting a low of 6,217.5 earlier in the day.
Euro zone rates were left at 4 percent, while the BoE left its rate at 5.75 percent and said it remained worried about price pressures, despite recent credit troubles hurting financial markets. Both decisions were expected by the majority of market participants.
On the upside, commodity stocks dominated, with Rio Tinto topping the FTSE 100 leaderboard on renewed speculation that BHP Billiton and Brazilian miner CVRD were planning a joint bid, according to traders. Rio declined to comment on the talk, which first emerged on Wednesday. Rio shares added 5.4 percent and BHP Billiton was up 4 percent.
Other miners buoyed by the consolidation talk included Anglo American, Lonmin and Vedanta. "The as-expected rate verdicts from Frankfurt and London gave little momentum," said Jimmy Yates, trader at CMC Markets. "But the fact the BoE made the unusual step of coming out with accompanying comments despite there being no change has added weight to suggestions that it may now prove difficult for the bank to effect another rate hike in the near term." "As a result stocks have found some upside off session lows but a choppy start on Wall Street is again making this run difficult to sustain," he added.
Oil stocks also featured on the upside, as US crude prices rose above $76 a barrel - near to an all-time high of $78.77. Heavyweight stocks Royal Dutch Shell rose 2 percent and BP gained 1.1 percent. BG Group rallied 4.8 percent after the natural gas producer said it had made a "significant" oil discovery in Brazil.
On the downside, banks weighed as jitters over the recent credit squeeze and inflationary concerns pulled the sector down. Northern Rock fell 3 percent, Barclays dipped 2 percent and RBS lost 1.6 percent. Among other decliners, Asia-focused bank Standard Chartered shed 2.1 percent after it said Kai Nargolwala, group executive director responsible for Asia and risk, had resigned.
But Drax Group, operator of Britain's biggest coal-fired power station, was the biggest loser, down 5.6 percent after reporting a 14-percent decline in first-half profit.
"This has been another roller coaster ride for equity and indices traders," said David Buik of Cantor Index. "Market protagonists have been running around like headless chickens - short of ideas and looking for cosy havens of rest - which have been hard to find," he added. "Mining stocks have underpinned the market and banking stocks have been friendless in the ring."
In other news, housebuilder Taylor Wimpey and Tullow Oil look set to replace property firm Segro and utility Kelda in the quarterly rejig of Britain's FTSE 100 benchmark index from September 24, according to analysts and market capitalisation data.
Index compiler FTSE will formally announce the changes to the FTSE UK index series after the market close on Wednesday, September 12 using the closing prices from the day before.