LONDON MARKETS: FTSE 100 Climbs, With Bank Stocks Rising After BOJ Decision

By Carla Mozee, MarketWatch

U.K. stocks pushed higher Wednesday, led by financial shares, as investors embraced a Bank of Japan monetary policy shift that should benefit yield-hungry banks.

The FTSE 100 picked up 0.7% to 6,875.63, with only the defensive health care and utility sectors losing ground. On Tuesday, the London benchmark rose 0.3% (http://www.marketwatch.com/story/ftse-100-becalmed-as-traders-wait-for-central-banks-2016-09-20) to 6,830.79.

Stocks climbed Wednesday after the BOJ unexpectedly said it would start targeting 10-year interest rates, committing to keep them around zero (http://www.marketwatch.com/story/bank-of-japan-keeps-rates-steady-tweaks-policy-framework-2016-09-21) as part of a new policy framework aimed at bolstering inflation. The central bank said it will maintain quantitative easing until its inflation target of 2% is overshot, and it kept its main interest rates unchanged.

"The market seems to be giving the BOJ a tentative thumbs up," said Richard Perry, market analyst at Hantec Markets, in a note. "However, perhaps it is a bit early to celebrate, as now the market will look forward to tonight's Fed decision."

He pointed out the initial reaction was for the yen to weaken, the Japanese government bond yield curve to steepen and Japanese equities to push higher. Japan's Nikkei (http://www.marketwatch.com/story/asian-markets-mixed-as-investors-await-boj-decision-2016-09-20) rose nearly 2%, and the Topix's banking subsector gained nearly 7%.

The BOJ's monetary policy shift means that yield curve control is now the central bank's focus, Perry noted. The move adds up to a renewed effort by the BOJ to put a lid on borrowing costs to boost economic growth, some analysts said.

Banks flying: The effort to steepen the yield curve was embraced by buyers of bank stocks, as financial institutions typically borrow on short-term rates and lend money on longer-term and higher rates.

London-listed bank shares flew higher, with Barclays PLC (BCS) (BCS) up 3.8%, Lloyds Banking Group PLC (LLOY.LN) (LLOY.LN) rose 2.4%, and Standard Chartered PLC (STAN.LN) tacked on 2%. HSBC PLC (HSBA.LN) (HSBA.LN) picked up 1.4%.

But Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) shares were up a more modest 0.2% as Spanish lender Santander (SAN) reportedly walked away from talks to buy the majority state-owned bank's Williams & Glyn branches.

Fed ahead: Investors have another key central bank meeting to grapple with later Wednesday. The U.S. Federal Reserve's decision on whether to raise interest rates is due at 7 p.m. London time, or 2 p.m. Eastern Time.

Read:Here's how the Fed's doves and hawks will use the new inflation and sales data (http://www.marketwatch.com/story/fed-hawks-will-leverage-inflation-data-to-get-their-way-doves-will-counter-with-retail-sales-2016-09-16)

(END) Dow Jones Newswires

September 21, 2016 04:12 ET (08:12 GMT)

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