London markets snap back from bruising day

London markets snapped back from a dismal start to the week as investors were buoyed by Monday’s Wall Street rally.

The capital’s premier FTSE 100 index added 1.02 per cent to reach 7,371.46 points, while the domestically-focused FTSE 250 index, which is more aligned to the health of the UK economy, climbed 0.9 per cent to 21,645.71 points.

The City’s top indexes closed sharply lower on Monday after investors were spooked by fears over the US Federal Reserve telling markets to get ready for a rapid tightening of monetary policy this year at its meeting today.

But, they partially reversed those losses yesterday.

Analysts said the rebound was driven by investors sniffing out bargains after stock prices dropped markedly.

Markets were “slightly more resilient,” Michael Hewson, chief market analyst at CMC Markets UK said, adding “some of the biggest losers from [Monday found] a degree of buying interest”.

A better than expected UK government borrowing print boosted market sentiment. The government took on £16.8bn in debt in December, below the £18.5bn consensus, but a shade higher than the Office for Budget Responsibility’s latest forecast.

Banks were a bright spot on the FTSE 100, with the likes of HSBC, Barclays, NatWest and Lloyds all advancing more than three per cent on predictions the UK economy is headed for a period of higher interest rates.

Financials led the FTSE 250 higher. Fund manager AJ Bell closed up 3.58 per cent.

The pound gained ground on the greenback, strengthening 0.15 per cent to buy $1.3502.