FTSE 100 in high spirits on Diageo results; Dr. Martens weighs on midcaps

© Reuters. FILE PHOTO: A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain, August 24, 2015. REUTERS/Suzanne Plunkett

By Shashank Nayar and Ambar Warrick

(Reuters) - London's FTSE 100 rose on Thursday following strong results from spirits maker Diageo (LON:DGE) and as bank stocks benefited from rising yields, while boots maker Dr. Martens dropped to a record low and pulled down British mid-caps.

The blue-chip FTSE 100 index was up 1.1%. Banks were among the top boosts to the index, tracking stronger yields after the U.S. Federal Reserve signalled a March interest rate hike while investors priced in another increase by the Bank of England next week.

Diageo, which makes popular brands including Johnnie Walker whisky, Tanqueray gin and Guinness stout was among the top boosts to the FTSE, rising 2.5% after it posted a large jump in half-year sales.

A weaker pound also helped dollar-earning companies like British American Tobacco (LON:BATS) and Imperial Brands (LON:IMB).

"The UK markets are well insulated right now due to no tech stock exposure, a sector which drops when interest rates rise, and while broader market sentiment is diminishing, UK will continue to outperform," said Craig Erlam, a senior market analyst at Oanda.

The FTSE 100 has steadily outperformed its peers in the developed world due to a higher weightage of banking shares, which tend to gain in a high-interest rate environment, and as elevated commodity prices supported energy and mining stocks.

"But this risk aversion that we see in global markets is not going to last long as we see traders desperate to buy in at current levels," Erlam said.

The domestically focussed mid-cap index fell 0.1%, with boots maker Dr. Martens down 9.0% to a record low after its revenue growth slowed in the third quarter.

Meanwhile, security and cleaning services provider Mitie Group (LON:MTO) rose 7.2% after it raised its annual profit outlook for the second time in four months.