FTSE powers ahead

A surprise hike in interest rates failed to derail the London market after the FTSE 100 Index powered ahead by 1% in strong afternoon trading.

Traders drew strength from a bright start on Wall Street, while the market took the view that 5.25% may be the peak for UK rates after three increases since August.

While the Footsie wobbled in the hour after the Bank of England’s decision, it eventually ended a dramatic session 69.4 points higher at 6230.1.

Miners were responsible for much of the improvement, with BHP Billiton up 43.5p at 930p, Xstrata ahead 91p at 2399p and Rio Tinto 100p stronger at 2649p.

The impact of the rate rise was felt in some quarters however, as property and mortgage companies came under pressure amid fears of a housing market slowdown.

Lenders Northern Rock and Halifax Bank of Scotland were down 16p and 11p to 1158p and 1145p respectively, but both stocks were on the recovery trail after pulling back from the initial shock of the rates decision.

The retail sector also featured on the fallers board as the British Retail Consortium warned that today’s rise in rates would hit consumers hard.

Marks & Spencer was one of the most notable fallers, slipping further from the £7 barrier with a decline of 4.5p to 683.5p. Next dropped 11p to 1937p, while Argos owner Home Retail Group eased 7p to 409p.

There was added to pressure on Sainsbury’s and Alliance Boots, who were already lower after morning trading updates from the pair failed to win over traders who were hoping for something stronger.

Sainsbury’s was down 4.25p to 410.25p as investors also took profits following strong gains in the last 12 months, even though the supermarket posted a 4.2% rise in sales over the festive season.

Meanwhile, Alliance Boots slipped 22.5p to 811p after analysts found a 2.5% rise in sales over Christmas a little disappointing.

The pair were joined on the fallers’ board by Morrisons which gave up 0.25p to 286p after positive trading figures propelled it to an all-time high in the previous session.

The rates impact was similar in the second-tier, as housebuilder Redrow fell 22p to 668.5p and car retailer Pendragon dipped 4p to 100p.

Elsewhere, Game Group jumped 9% or 10.25p to 124p after it issued a trading update which was described by one analyst as “simply stunning”.

JJB Sports was also in favour – up 6p to 246p – as it continued to benefit from broker upgrades following yesterday’s trading statement.

But HMV was on the slide after it racked up half-year losses of £31.8 million as its music stores and Waterstone’s book chain struggled to compete with supermarkets and the growing power of the internet. Broker downgrades meant shares closed 4% lower, or 5.5p to 141.25p.

The biggest Footsie risers were BHP Billiton up 43.5p at 930p, Kazakhmys ahead 40p at 1053p, Xstrata up 91p at 2399p and Rio Tinto ahead 100p at 2649p.

The biggest fallers were Alliance Boots down 22.5p at 811p, Tate & Lyle off 18.5p at 739p, Land Securities down 38p at 2165p and Enterprise Inns off 22p at 1277p.