UPDATE 2-Sterling dives, FTSE flies, after BoE cuts rates and resumes QE

jueves 4 de agosto de 2016 11:54 GYT

(Updates prices)

By Jemima Kelly

LONDON Aug 4 (Reuters) - Sterling sank to an eight-day low and Britain's main share index jumped on Thursday, after the Bank of England surprised markets with a 60 billion-pound bond-buying programme and cut interest rates to record lows.

The BoE's interest rate cut, the first since 2009, was widely expected. But economists had been divided on whether the central bank would revive its bond purchases, and most of those who had been expecting it had forecast a smaller figure.

British five- and 10-year government bond yields dropped to record lows of 0.196 percent and 0.639 percent respectively after the policy decision.

The Bank cut its main lending rate to 0.25 percent from 0.5 percent and launched two new schemes, one to buy 10 billion pounds of high-grade corporate bonds and another - potentially worth up to 100 billion pounds - to ensure banks keep lending even after the cut in interest rates.

Having earlier hit a three-week low, the FTSE 100 reversed course, jumping 1.6 percent on the day. The mid-cap FTSE 250 index, dominated by domestically focused companies, extended gains to trade 1.4 percent higher. Lloyds Banking Group and Royal Bank of Scotland, however, hit lows for the day.

Money markets immediately moved to price in the chance of the Bank cutting interest rates further, with five-month overnight interbank offered rates falling 5 basis points to 0.1090 percent

"Today's rate cu t... did not come as a surprise to the market," said Anthony Doyle, Investment Director at M&G Retail Fixed Interest. "What came as a surprise was the extent of the stimulus package."   Continuación...