By Josephine Mason
LONDON (Reuters) - UK shares jumped almost 1 percent on Thursday as Wall Street's rally spread across Europe after the Federal Reserve chairman suggested it may be nearing an end to its tightening cycle, boosting investor appetite for assets considered riskier.
The FTSE 100 (FTSE) was up 0.8 percent at 0955 GMT and the midcap index (FTMC) rose 0.6 percent.
Fed Chair Jerome Powell said on Wednesday that the bank's policy rate was now "just below" estimates of a level that neither brakes nor boosts a healthy U.S. economy.
Higher interest rates mean higher borrowing costs, which can reduce economic activity and consumption.
Still the blue-chips were on track for their second straight monthly loss amid continued worries about the outcome of Prime Minister Theresa May's divorce deal with Brussels and Brexit's impact on the UK economy. Parliament will vote on the agreement on Dec. 11.
Investors were also cautious ahead of a planned meeting between U.S. and Chinese presidents at the G20 in Argentina at the weekend amid hopes the world's two largest economies may resolve a prolonged conflict over trade at a time of slowing global growth.
The British government's assessment of different Brexit options on Wednesday, reinforced by central bank governor Mark Carney's warning of a heavy hit to the British economy in the event of a disorderly exit from the EU, also kept investors on the sidelines.
The market was also digesting a positive report following the central bank's latest stress test of seven British banks and building societies, which showed they could withstand a disorderly Brexit without having to curb lending.
"All of the banks passed fairly comfortably in the most extreme scenarios, though Lloyds was perceived to be the most vulnerable due to its high UK exposure of credit card loans and mortgages," said Michael Hewson, chief market analyst at CMC Markets UK.
The result was largely in line with expectations and banking stocks (FTNMX8350) were up 0.6 percent. Lloyds (L:LLOY) and RBS (L:RBS) were both 0.9 percent higher.
Mining stocks (FTNMX1770) were some of the biggest beneficiaries of the Powell-induced bounce on the back of higher base metals prices. The sector was up 2.4 percent and on track for their best day in two weeks.
Copper supply worries also lifted the sector, with miner Antofagasta (L:ANTO), up 4.8 percent, topping the FTSE 100.
Investors piled into building materials stocks after the dovish Fed comments, betting that slower-than-expected rate hikes may boost the flagging U.S. housing sector.
The sector (FTNMX2350), which includes CRH (I:CRH) and Melrose Industries (L:MRON) was up 3.1 percent, on track for their best day since April 2017.
Ashtead Group (L:AHT), which rents equipment such as diggers and construction tools, got an extra boost, rising 3.7 percent, after news its CEO Geoff Drabble will step down next year.
Most of the action was on the mid and small cap indexes, with Intu (L:INTUP) losing more than a third of its market cap and hitting record low after a consortium led by deputy chairman John Whittaker abandoned its plan to buy the British shopping centre group.
The news sent fresh shivers through the already-battered sector, dragging its rival Hammerson (L:HMSO) 4.8 percent lower.
Elsewhere, earnings boosted soft drinks maker Britvic (L:BVIC) and pub group Greene King (L:GNK), which were up 6 percent and 5.6 percent respectively.
"If Greene King can continue to manage its margins and maintain decent sales, then investors will certainly be getting the rounds in when the full-year results are announced," said Julie Palmer from consultancy firm Begbies Traynor.
Senior was lifted by a JPMorgan (NYSE:JPM) upgrade.
Investors in funeral services provider Dignity (L:DTY) mourned the news that the Competition and Markets Authority (CMA) have launched a probe into pricing in the funeral services sector after it found problems of large price hikes that hit "people at their most vulnerable".
Shares plunged 15 percent to their lowest since June. Peel Hunt cut its rating to sell from hold on the news.
"The best case scenario is that the CMA just ends up asking for greater visibility on pricing. However, the tone of the statement suggests greater remedies will be required," the analysts said in a note.
