LONDON, July 14 (Reuters) - Sterling surged to two-week highs against the dollar and euro on Thursday while British share prices turned negative, after the Bank of England kept interest rates unchanged, wrong-footing the many investors who had expected a cut.
The Bank said it was likely to deliver stimulus in three weeks' time, possibly as a "package of measures", once it has assessed how Britain's June 23 vote to leave the European Union has affected the economy.
Sterling soared to $1.3480, up more than 2 percent on the day and its strongest since June 30, after the policy decision, having traded at $1.3210 immediately before. But it then pared those gains to trade at $1.3325, still up 1.3 percent on the day.
"They have kept the door open for August. There was an initial kneejerk but $1.35 saw significant resistance," said BMO Capital Markets currency strategist Stephen Gallo.
"If the risk rally continues, we could be back up there tomorrow, but from a three-month perspective $1.35-1.36 is looking like a good place to sell the pound at the moment."
Against the euro, too, sterling gained as much as 2 percent to hit a two-week high of 82.51 pence, before trimming gains to trade at 83.415 pence, around 1.2 percent up on the day. Before the policy announcement the euro had traded at around 84 pence.
The blue chip FTSE 100 and mid-cap FTSE 250 turned lower after the decision, with the FTSE 100 down 0.1 percent having been up 0.8 percent beforehand. Housebuilders such as Berkeley and Barratt Developments turned negative.
British government bond yields rose sharply. The 10-year gilt yield rose around 4 basis points to the day's high of 0.815 percent after the decision, before easing back to 0.80 percent.
Short sterling interest rate futures <0#FSS:> turned negative, falling around 4 to 6 ticks across the 2016 and 2017 contracts.
German Bund futures hit the day's low of 166.72 , while 10-year German Bund yields were up 3.5 basis points at minus 0.11 percent. (Reporting by Jemima Kelly, Dhara Ranasinghe, Alistair Smout, Patrick Graham and Andy Bruce, editing by Nigel Stephenson)