Fed move drives FTSE to two-year high

Federal Reserve actions to bolster America's economic recovery fuelled traders' appetite for risk yesterday and sent stock markets rallying across the world.

In the City, the benchmark FTSE 100 index leapt to its highest level for more than two years, closing 113.82 points or almost 2 per cent stronger at 5,862.79, while the Dow Jones Industrial Average pressed ahead more than 1.6 per cent at the London close.

The decision by US policymakers to pump an extra $600 billion (370bn) into its economy over the next eight months also saw the Cac 40 in France move nearly 2 per cent higher, while Germany's Dax gained 1.8 per cent.

In London, the Bank of England decision not to follow suit with its own money boosting measures failed to hold back gains on the Footsie as it surged to its highest level since June 2008.

As widely expected, the UK central bank opted to keep rates at 0.5 per cent and quantitative easing (QE) at 200bn as it maintained its "wait and see" approach.

The vote to hold policy sparked a rally for the pound, which hit nearly $1.63 - its highest level since January - as the greenback weakened in the wake of so-called QE2 in the US.

Phil Poole, global head of macro investment strategy at HSBC Global Asset Management, said: "The market's reacted positively to QE and … with data out of the US better, the concerns about a slowdown are less pronounced."

There was good economic news from the United States where non-farm productivity rose faster than expected in the third quarter, while unit labour costs fell.

With the weaker dollar causing a sharp rise in commodity prices, gains for mining stocks ensured the Footsie made strong advances. Xstrata added 90p to 1,366.5p, Eurasian Natural Resources was up 61.5p at 949.5p, and BHP Billiton leapt 138p to 2,418p.

Unilever posted one of the biggest gains of the session - up 6 per cent or 114p to 1,924p - after the Hellmann's mayonnaise and Dove soap firm reported sales volumes growth of 4.8 per cent in the third quarter.

BT increased by 3.9p to 161.6p - a rise of 3 per cent - as investors welcomed news that the group's pension fund deficit was being slashed by 2.9bn due to changes being introduced by the government to align annual rises with consumer prices index inflation rather than the retail prices index.

The latest trading update from supermarket group Morrisons failed to impress as its figures continued to show subdued growth.

Like-for-like sales rose 1.3 per cent in the third quarter, reflecting price inflation rather than volume growth. Shares dropped 11.3p to 278.7p, a fall of nearly 4 per cent.

Rolls-Royce sank to the bottom of the Footsie, down 33p to 621.5p, after an Airbus A380 owned by Qantas was forced to make an emergency landing due to an engine failure.

Financial stocks were among the top gainers.The world's largest listed hedge fund firm Man Group, up 14.6 per cent at 290.8p, reported upbeat first-half results.