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FTSE gains on banks, after BoE extends QE programme

Published 08/06/2009, 07:40 AM
Updated 08/06/2009, 07:45 AM
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* FTSE 100 hits year's new high

* BoE boosts QE to 175 bln sterling, holds rates

By Dominic Lau

LONDON, Aug 6 (Reuters) - Britain's leading share index rose by midday on Thursday, hitting a new intraday high for the year, after the Bank of England surprised the financial markets by raising the size of its quantitative easing programme.

By 1132 GMT, the FTSE 100 was up 57.00 points, or 1.2 percent, at 4,704.13, after hitting 4,711.51, a fresh 2009 intraday high.

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.

"In the short-term, QE will be good for markets. But the longer-term question of what happens when stimulus stops or (is) even withdrawn, it may not be quite positive and that's a question for another day," said Peter Dixon, UK economist at Commerzbank.

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

Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC were up 4.9-8.4 percent.

Within the financial sector, life insurer Aviva surged 8.2 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 0.9 percent after Citigroup cut its rating to "hold" following weak numbers on Wednesday.

Non-life insurer RSA Insurance fell 0.4 percent as a cautious outlook statement offset its better-than-expected first-half operating profit.

The European Central Bank (ECB) is scheduled to announce its decision on interest rates at 1145 GMT, and the U.S weekly jobless data is due out at 1230 GMT.

Anglo-Dutch household products giant Unilever saw support after forecast-beating results, rising 7.6 percent, as Numis repeated its "add" rating and suggested switching into the stock from Cadbury, as it had more favourable second half momentum.

Miners, however, were the top losing sector, 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 0.9-3.4 percent. (Editing by Simon Jessop)

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