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Banks drive FTSE's gains after BoE extends QE

Published 08/06/2009, 12:14 PM
Updated 08/06/2009, 12:18 PM
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* Banks best performing sector

* BoE boosts QE to 175 bln sterling, holds rates

* FTSE 100 hits new 2009 intraday high

* Miners fall on weaker metals prices

By Tricia Wright

LONDON, Aug 6 (Reuters) - Britain's leading share index closed higher on Thursday, driven by strength from banks after the Bank of England (BoE) surprised markets by expanding its quantitive easing plan to 175 billion pounds.

The FTSE 100 closed 43.40 points higher, or 0.9 percent, at 4,690.53, after hitting a fresh 2009 intraday high of 4,729.58 following the BoE announcement.

The BoE extended its quantitative easing programme, raising the size of its bond purchase scheme to an unexpectedly large 175 billion pounds from 125 billion, and held interest rates at 0.5 percent.

The UK market pared some gains after Wall Street turned lower amid general nervousness and aversion to risk.

"The fact that we've had a very decent run over the last three or four weeks (means) some people are starting to get slightly nervous on valuation grounds," said Richard Hunter, head of UK equities at Hargreaves Lansdown, referring to the U.S. markets.

Banks added the most points to the UK index, also helped by this week's so far positive earnings news.

Lloyds Banking Group topped the FTSE 100 leaderboard, adding more than 12 percent, followed by Royal Bank of Scotland, which gained nearly 10 percent, with Barclays and HSBC up 5.2 percent and 5.4 percent, respectively.

Within the financial sector, life insurer Aviva added 5.4 percent after it posted stronger-than-expected first-half profit, helped by cost cuts, and said it planned a partial flotation of Dutch subsidiary Delta Lloyd to bolster its capital.

Standard Life, however, lost 2.1 percent after Citigroup cut its rating to "hold" following weak numbers on Wednesday.

Non-life insurer RSA Insurance fell 2.5 percent as a cautious outlook statement offset its better-than-expected first-half operating profit.

Thomson Reuters was also among the top blue-chip risers, up 6.1 percent, after the news and financial data publisher reported a better-than-expected quarterly profit, helped by cost cuts, and said it expected 2009 revenue to grow as the financial industry recovers.

Anglo-Dutch household products giant Unilever saw support after forecast-beating results, rising 5.4 percent, as Numis repeated its "add" rating and suggested switching into the stock from Cadbury, as it had more favourable second half momentum.

MINERS, OILS WEIGH

Miners were the biggest drag on the blue chips, tracking metal prices as investors paused to assess whether recent gains were justified given that economic recovery may not be as strong as prices indicated.

Antofagasta, Rio Tinto, Anglo American, Eurasian Natural Resources and Kazakhmys lost 1.1-3.8 percent.

As U.S. crude prices fell nearly $1 to around $71 a barrel on oversupply concerns, weakness was seen among oil stocks, with BG Group and BP dropping 0.1 percent and 1 percent, respectively. (Editing by Karen Foster)

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