By Helen Reid
LONDON (Reuters) - Britain's top share index climbed to a new one-month high on Wednesday as investors bet on financial stocks after U.S. Federal Reserve Chief Janet Yellen's hawkish tone suggested U.S. interest rates would rise.
A rally in mining shares on the back of stronger metals prices also lent some support to the broader stock market.
The blue-chip FTSE 100 index (FTSE) closed 0.5 percent higher after setting its highest level since mid-January.
Both the mid-cap (FTMC) and small-cap (FTSC) indexes hit all-time highs, maintaining momentum from Tuesday's session. Acacia Mining (L:ACAA) was among top mid-cap gainers, up 3.5 percent, after Credit Suisse (SIX:CSGN) raised its rating on the stock to "outperform".
The UK banking index (FTNMX8350) rose 1.5 percent to an 18-month high, helped by a 1.2 to 2.1 percent rise in RBS (L:RBS), Standard Chartered (L:STAN), Barclays (L:BARC). HSBC (L:HSBA) and Lloyds (L:LLOY) after Yellen said the Fed would likely need to raise rates at its next meeting.
Higher interest rates translate into higher margins for banks, which have been under pressure from a "lower for longer" interest-rate environment.
"Hints at higher interest rates, a positive for lending margins, propelled bank shares higher. Lenders with a US presence including Barclays and HSBC were top risers on the FTSE 100," said Jasper Lawler, analyst at London Capital Group.
The mining index (FTNMX1770), up 0.5 percent, was also among the top gainers. Shares in BHP Billiton (L:BLT), Rio Tinto (L:RIO) and Anglo American (L:AAL) advanced 0.3 to 2 percent.
Elsewhere, construction company Ashtead (L:AHT) was up 2.5 percent, while insurers Prudential (L:PRU) and Legal & General (L:LGEN) increased more than 1 percent.
Tour operator TUI (L:TUIT) was the biggest loser on the index, down 7.2 percent on profit taking after its results led to a jump on Tuesday. The stock erased its gains of the previous session.
Gambling firms Ladbrokes (L:LCL) and William Hill (L:WMH) were under pressure, however, down 3.2 and 2.8 percent, after HSBC cut its ratings on both stocks to "reduce" from "hold".
"A consumer downturn isn’t certain, but we analyse the bear case given the risks and conclude that, while the online market could remain flat, retail revenues could decline ... and operators could face EBITDA downgrades,” HSBC analysts said.
NEX Group (L:NXGN), a brokerage which reported higher earnings on volatile markets after Donald Trump's election as U.S. president, was also down 4 percent.