By Shashank Nayar and Ambar Warrick
(Reuters) -London's FTSE 100 rebounded on Tuesday from a one-month low hit a day earlier, supported by major bank stocks as expectations of tighter monetary policy drove up bond yields.
The blue-chip FTSE 100 index gained 1.0%, with lenders HSBC and Lloyds Banking Group (LON:LLOY) among the top boosts.
Heavyweight oil stocks also rose as concerns of a military conflict in Ukraine and risks in the Middle East buoyed crude prices with the prospect of supply disruptions. [O/R]
The domestically-focussed midcap index rose 0.9% after closing at a near 10-month low on Monday.
Market participants were cautious ahead of the outcome of the Federal Reserve policy meeting on Wednesday, expecting a hawkish stance from policymakers.
Expectations are also high that the Bank of England will increase rates for the second time in less than two months at its policy meeting next week. [BOEWATCH]
"Global equity markets have retraced sharply recently amid worries about a looming Fed lift-off and tensions around Ukraine," Thomas Hempell, Head of Macro & Market Research, Generali (MI:GASI) Investments wrote in a note.
"An escalation of the conflict and subsequent sanctions by the West may add to worries about energy supply for Europe, adding to virulent inflation uncertainties."
The FTSE 100 has outperformed its peers in developed markets this year, supported by its attractive valuations and gains in heavyweight energy and banking shares.
UK markets offer a good hedge in the event of a multiple compression driven by rising rates, with equities offering the best valuation cushions and the highest dividend yields among key markets, analysts at JP Morgan said in a note.
Among individual stocks, Royal Mail (LON:RMG) rose 1.3% after it said it will lay off around 700 managers as part of cost cutting efforts aimed at transforming the centuries-old postal company.
Unilever (LON:ULVR) slipped 0.2% after the consumer products maker unveiled plans to cut about 1,500 management jobs.