LONDON MARKETS: FTSE Struggles For Direction After Hawkish BOE, Greek Hopes

By Carla Mozee and Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- The FTSE 100 index ended flat on Wednesday, with hawkish minutes from the Bank of England outweighing waning worries over Greece's debt deal.

The benchmark ended at 6,898.08, just 0.05 points lower than Tuesday's close, when it hit the highest level since December 1999.

U.K. stocks opened the day in positive territory on hopes Greece and its European partners will hammer out a debt deal before the country's current bailout program ends on Feb. 28. Greek government officials said the country will submit a request for a loan-extension agreement on Thursday.

Hawkish BOE: However, U.K. stocks started to head lower after a round of upbeat labor-market data and the Bank of England's minutes from its Feb. 5 meeting. While policy makers voted unanimously to leave the key interest rate at 0.5%, two of them said the decision was a "finely balanced" call, and that "there may well be a case" for a rate increase later in 2015.

Jobs data: Meanwhile, data showed U.K. unemployment dropped to 5.7% in the three months through December -- the lowest in almost six years -- from 5.8% a month before. Salaries grew at the fastest pace in a year and a half, a fresh sign that a long squeeze on living standards is coming to an end.

The solid labor-market report provides the BOE with more ammunition to eventually raise interest rates, which isn't well-received by stock investors.

"Consistent with the Inflation Report press conference last week, the minutes recognized the theoretical risks from low inflation, but preferred to focus more fire on the boost to growth that cheaper oil provides," said Rob Wood, chief U.K. economist at Berenberg, in a note. "In our view, a deflationary spiral is unlikely in the UK, especially given the tightening labor market."

Sterling: The pound (GBPUSD) recaptured the $1.54 level against the U.S. dollar after the arrival of U.K. labor-market data and the BOE report. The pound was buying $1.5429, versus $1.5354 late Tuesday.

Stocks: Vodafone Group PLC (VOD) added the most pressure on the FTSE, down 2.5%. The wireless telecom company said chief technology officer Stephen Pusey, who is retiring this summer, will join the board of Centrica PLC . Centrica shares rose 0.4%.

Other decliners included Coca-Cola HBC AG , which fell 3.1% after the bottler posted a decline in fourth-quarter net profit and warned of a persistent volatile environment this year.

Tesco PLC (TSCDY) erased an earlier gain and fell 0.7%. Late Tuesday, Britain's largest supermarket chain named John Allan as its new chairman. His tenure will begin on March 1 as he takes over from Richard Broadbent. The company is undergoing a sweeping overhaul under the leadership of new chief executive, Dave Lewis.

Allan currently serves as chairman of home builder Barratt Developments PLC and deputy chairman of Dixons Carphone PLC .

Deutsche Bank on Tuesday upgraded Tesco to a buy rating from hold, saying the company "has shown three months of improved sales performance and the discounters share growth has slowed."

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