By Sudip Kar-Gupta and Lionel Laurent
LONDON (Reuters) - UK stocks rallied on Thursday, driven by a bounce in retailer Tesco (LONDON:TSCO)'s shares on the back of restructuring plans, even as rival Marks & Spencer fell after it warned of delivery woes.
The UK economy was also in focus as the Bank of England left interest rates unchanged at 0.5 percent after its first meeting of 2015. Tumbling oil prices have pushed inflation to a 12-year low and last year's rapid growth shows some signs of easing.
The FTSE 100 index was up by 1.8 percent at 6,532.75 points at 1232 GMT. This was slightly below a 2 percent rise for the broader pan-European FTSEurofirst 300 index on a cheery day for stock markets, with minutes from the U.S. Federal Reserve indicating it was not in a hurry to hike interest rates.
Tesco was up 12.6 percent, enjoying its biggest one-day gain in six years after unveiling plans to sell assets and cut hundreds of millions of pounds of costs to fund lower prices in store.
"Whilst there is no quick fix at Tesco, there is enough in this statement to suggest that Tesco has started to stop the rot in the UK," said Chris White, head of UK equities at Premier Asset Management.
Tesco's gains also pulled up shares of rivals Sainsbury and WM Morrison, up 9.3 percent and 6.2 percent respectively, but Marks & Spencer shares slumped more than 4 percent after posting a worse-than-expected drop in underlying sales of clothing, gifts and homeware over Christmas.
M&S said delivery problems at its online business hit sales.
"Debt levels remain over 2 billion pounds and the company has a pension deficit to fund, which will likely limit the potential for accelerated dividend payouts," said Cantor Fitzgerald analyst Freddie George, commenting on M&S.
Shares of British recruiting firm Hays were up 2.3 percent after the company raised its first-half operating profit forecast, following strong demand in Britain, Australia and Asia.