By Shashwat Awasthi
(Reuters) - London's main index rose as investors bet central banks would soon ease policy in response to concerns about global growth, though the rally was dampened after the European Central Bank delayed any potential interest rate hike to next year.
The FTSE 100 rose 0.6%. The mid-cap FTSE 250 gave up its earlier gains to end marginally lower as financial stocks slipped as investors were left disappointed by the ECB's cheap loan lending programme for banks.
The ECB pledged to keep its interest rates unchanged at least through the first half of 2020, instead of the end of this year as it had said in March, which was not dovish enough for investors counting on policy easing in the near-term.
"Instead of taking a rate hike off the table, it's instead decided to simply push the first hike further out. Head still in the sand. Markets still pricing for a cut before then," Markets.com analyst Neil Wilson said.
Most of the FTSE 100's gains came earlier in the session as worries over Washington's escalating trade tensions with Beijing and Mexico gave way to hopes that major central banks would provide fresh stimulus in response.
"We're at a 'bad news is good news' point now for stocks as markets turn back to their old habit of requiring weaker data to push up expectations for stimulus," Wilson said.
Defensive blue-chip stocks such as those of tobacco and healthcare companies, considered safer bets in times of uncertainty, drove later moves, according to a trader. Imperial Brands (LON:IMB) jumped 5.7% on its best day in more than a year.
However, supermarket chain Sainsbury, retailer Kingfisher (LON:KGF) and telecoms giant Vodafone (LON:VOD) shed between 3.8% and 4.8% as the stocks traded ex-dividend.
Despite a dip in financial stocks, the mid-cap index was cushioned by Peppa Pig maker Entertainment One, which surged 16%, recouping almost all of its losses from the previous session.
The company denied media reports that president Mark Gordon would leave the company, and the stock posted its biggest one-day gain in more than 3-1/2 years.
Go-Ahead Group (LON:GOG), which operates a quarter of London's local buses and the Southeastern rail franchise, climbed 10.5% on its best day since September 2018, after it raised full-year expectations for its London and international bus division.