FTSE surges despite interest rate freeze fears

LONDON'S benchmark FTSE 100 surged nearly 3 per cent yesterday as banking and mining stocks led the index higher.

The renewed investor confidence came despite economists predicating that the Bank of England's monetary policy committee (MPC) will hold interest rates at record lows as it begins its two-day meeting today.

Yesterday's 141.47 point rise - which took the Footsie to 4,965 - came as Brian Coulton, managing director of European ratings at Fitch, said the risk of a double-dip recession in the UK is now less than 50 per cent.

Coulton said: "We still think it's a long way below 50 per cent, it's not our central forecast at all."

Asked about stress tests gauging the health of the banking sector, Coulton said large Spanish banks looked "pretty strong to us".

"We do think there are problems in certain sector in particular the Spanish saving sector, but by and large, the major Spanish banks look pretty strong to us," he said.

Fitch still has Greek debt rated investment grade since last downgrading the sovereign in April.

"The news that we've got coming through since our last rating action on Greece, which was in April has, if anything, been on the slightly more positive side," he said.

The Bank of England is almost certain to leave interest rates at 0.5 per cent, with few policymakers tempted to join last month's rate-rise advocate Andrew Sentance given the threat to sustained economic recovery.

None of the 61 economists polled by news agency Reuters expect the MPC to change policy as the scale of spending cuts in the new government's emergency Budget increase the risk of sluggish growth next year.