FTSE rallies in late trade as fears ease over US rate rise

London's Footsie closed up 33.08 points at 5358.17 having suffered volatility earlier in the day after the move by the Fed.

But sentiment shifted after Wall Street trading wore on and as investors began to see the rates decision as a sign of strength for the banking sector.

Encouraging US inflation news also helped the market on both sides of the Atlantic, with figures showing that America's rate of inflation barely rose last month, up 0.2 per cent.

Quarterly forecasts released by the Fed on Wednesday showed policymakers expect inflation to remain muted.

US stock index futures pared losses on the report, while Treasury debt prices added gains. The US dollar trimmed gains versus the yen.

"US consumer prices came out tame during the month of January and that alleviates worries of higher inflation that we saw from the wholesale-level inflation report," said Joe Manimbo, currency trader at Travelex Global Business Payments in Washington.

"So that type of data reinforces the outlook for low US interest rates for the foreseeable future," he said.

The Dow Jones Industrial Average turned an initial 40-point fall into a rise of nearly 20 points within the first few hours.

The Fed's quarter-point rise in the 'discount' rate had caused concern that ordinary US borrowing costs could also be hiked, slowing the recovery in the world's largest economy.

This strengthened the dollar, sending the pound to a nine-month low against the greenback, at 1.54 dollars.

Sterling was also knocked by a surprisingly big fall in UK retail sales last month as markets bet the Bank of England could wait for longer before tightening monetary policy.

Among retailers, Tesco fell 21/4p to 4273/4p and Argos owner Home Retail Group eased back 13/4p to 264p after recent rises.

Miners accounted for many of the Footsie's heaviest fallers in the wake of the Fed decision as the strong dollar sent oil prices down to near 78 US dollars a barrel. Anglo American was the biggest faller, down 441/2p to 24571/2p, as disappointment over its decision not to pay a final dividend overshadowed forecast-beating results.

Fresnillo followed not too far behind, as shares declined by 111/2p to 774p.

British Airways failed to see much gain despite victory in a court battle with cabin crew.

Shares were 7/8p higher at 2105/8p after the workers on Friday lost their High Court bid for a permanent injunction preventing the airline from imposing cost-cutting proposals.

But pharmaceutical firm Shire was enjoying a better session, ahead 60p to 1370p, after it reiterated targets to secure mid-teen revenue growth on average between 2009 and 2015 and reported annual revenues that were ahead of expectations.

In the FTSE 250, pest control to delivery firm Rentokil Initial was rewarded with a 10 per cent, or 113/4p rise to 1293/4p after it set its sights on "modest" growth and reported good progress on turning around the struggling parts of the business.

Fellow second tier stock Millennium & Copthorne also advanced after the global hotels operator impressed with better than expected results and news that sales growth had returned in the first five weeks of 2010.

Shares rose 11 per cent, or 411/4p to close at 4173/4p.

The biggest Footsie risers were Shire, Unilever up 51p to 1947p, British American Tobacco lifted 55p to 2225p and BT rose 23/4p to 1185/8p. The biggest Footsie fallers were Anglo American and Wolseley off 26p to 1439p.