By Yadarisa Shabong and Muvija M
(Reuters) - A rebound in bank stocks after the U.S. Federal Reserve adopted a guarded stance on future interest rate cuts lifted London's blue-chip index on Thursday, while clothing retailer Next wilted after a disappointing start to autumn trading.
The FTSE 100 index (FTSE) ended 0.6% higher and the mid-cap FTSE 250 index (FTMC) rose 0.2%, with the financial sector boosting both the indexes.
The Fed slashed rates for the second time this year, but set a higher bar to any further reductions. Central banks around the world have been loosening monetary policy to stem a slowdown in economic growth.
"Financials is the European super-sector out in front; no doubt the result of a raft of central bank meetings that barely dented the rates environment," City Index analyst Ken Odeluga said.
A sub-index of banks (FTNMX8350) advanced 1.4%, recovering from losses earlier in the week. CMC Markets analyst Michael Hewson said the Fed's signal to hold back on further cuts was probably not priced in.
The Bank of England's announcement at midday to keep rates unchanged, although expected, further aided the FTSE 100's run-up to Thursday's session high.
UK stocks were not deterred after the BoE warned that Brexit uncertainty and slower global growth were increasingly causing the UK to perform below its potential, adding that failure to reach a deal to leave the European Union by Oct. 31 would worsen the problem.
"Brexit concerns haven't gone away, though Parliament's suspension offers a short, tense, break," Odeluga added.
Among stocks, Next (L:NXT) tumbled nearly 6% after a "disappointing" start to autumn trading that the retailer said was down to unusually warm weather in parts of Britain.
JD Sports (L:JD) dropped almost 3% after the British competition regulator announced its intention to refer the retailer's deal to buy Footasylum to a phase-2 investigation.
Brokerage actions drove some blue-chip moves. The world's second largest mobile operator Vodafone (L:VOD) advanced 2.7% after HSBC hiked its price target.
British Airways owner IAG (L:ICAG) gained 3.8% after Morgan Stanley (NYSE:MS) initiated coverage with an "overweight" rating, saying the hurdles the company faces have been more than priced in.
Midcap constituent IG Group (L:IGG) jumped 10% to a seven-month high as client numbers grew thanks to favourable market conditions in August. Online trading platform rival Plus500 (L:PLUSP) added 5%.
Insurance services firm Charles Taylor (L:CTR) shot up by 38% to its highest level in three years, with the share price topping the 315 pence-a-share go-private deal it has agreed with a firm backed by private equity firm Lovell Minnick Partners.