By Kit Rees
LONDON (Reuters) - UK shares retreated on Thursday, hit by a fall among mining companies after the U.S. Federal Reserve raised interest rates, though shares in banking stocks and Centrica (L:CNA) rallied.
The blue chip FTSE 100 (FTSE) index was down 0.2 percent at 6,935.65 points by 1009 GMT, underperforming the broader rally across European markets which was underpinned by gains in the banking sector.
The U.S. Federal Reserve hiked interest rates by 25 basis points on Wednesday and signalled an accelerated pace of increases in 2017.
The move weighed on shares of precious metals miners Fresnillo (L:FRES) and Randgold Resources (L:RRS), the biggest fallers on the blue chip index, down 8.7 percent and 6.9 percent respectively after the price of gold fell to its lowest in over 10 months, hit by a firmer dollar.
Similarly shares in miners Antofagasta (L:ANTO), BHP Billiton (L:BLT), Anglo American (L:AAL) and Glencore (L:GLEN) came under pressure from dollar strength, which makes the cost of greenback-denominated underlying commodities more expensive to holders of foreign currency.
UK banks, however, rose, with the FTSE 350 banking index (FTNMX8350) up 0.7 percent, with Royal Bank of Scotland (L:RBS) and Barclays (L:BARC) the biggest risers, both up more than 2 percent.
A U.S. rate rise is considered a positive for banks, which have struggled in a low-rate environment.
"Rising interest rates are generally quite good for banks, depending on their specific situation, but in general they are sitting on large deposit bases and they can make a bigger spread as interest rates go up," Simon Gergel, CIO of UK Equities at Allianz (DE:ALVG), said.
Centrica (L:CNA) was the biggest riser on the blue chip index, gaining 5.5 percent and touching a 2-month high after the utility lifted its full-year guidance on better-than-expected cost savings and a strong trading performance in a volatile market.
Among the midcaps, Just Eat (L:JE) advanced 1.9 percent to hit an all-time high after agreeing to buy its main UK rival hungryhouse, an online food company, for an initial consideration of 200 million pounds.
The online food delivery company also agreed to buy SkipTheDishes in Canada.
"Intuitively, we are positive on the transaction, consolidation is a good thing in online marketplace models whatever the vertical, this deal not only consolidates the UK effectively, it also removes the possibility of a more radical combination for HH (hungryhouse)," analysts at Jefferies said in a note.