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LONDON (Alliance News) - London shares outperformed their European and US peers Wednesday after the Bank of England minutes showed a surprise unanimous decision to keep UK interest rates on hold, prompting analysts to push back their expectations for the first rate hike since the onset of recession.

Meanwhile, both stock prices and the euro were rocked by media reports that the European Central Bank's executive board has proposed bond purchases of about EUR50 billion a month lasting for at least a year.

The ECB's executive board met on Tuesday to decide on the proposal, which will form the basis of deliberations by the entire 25-member governing council when it meets on Thursday, the Wall Street Journal said. The final figure and the details of the plan could change after the full council weighs in, it said.

Bloomberg also cited two eurozone central bank officials who have seen the document saying that the proposal foresees asset purchases of EUR50 billion a month through the end of 2016.

The WSJ said an ECB spokesman declined to comment.

The ECB will announce its monetary policy decision on Thursday at 1245 GMT, and President Mario Draghi will hold a press conference at 1330 GMT.

"Apparent confirmation of the theory that QE is coming was enough to cause markets to rally, although a denial from the institution itself was enough to stymie any further move higher," said IG market analyst Chris Beauchamp.

"The risk of such moves is that they increase the chance of disappointment when Mario Draghi actually appears in front of journalists tomorrow. It might be the ECB’s last chance to regain control of the situation, so Mr Draghi has to make every shot count," the Beauchamp added.

After an initial period of volatility, the euro appeared to be stabilising at the close of London equity trade, quoted at USD1.1597.

The FTSE 100 closed up 1.6% at 6,728.04, and the FTSE 250 closed up 0.8% at 16,253.31, both taking their run of gains to five consecutive days. The AIM All-Share index closed up 0.2% at 699.97.

In Europe, the CAC 40 in Paris closed up 0.9%, and the DAX 30 in Frankfurt ended up 0.4%. When the European markets closed, the DJIA was up 0.2%, while the S&P 500 and the Nasdaq Composite were both up 0.5%.

Policymakers of the Bank of England unanimously decided to leave the key rate unchanged, voting in unison for the first time in six months. The Monetary Policy Committee voted 9-0 to retain the base rate at 0.50% and to maintain the size of asset purchases at GBP375 billion, minutes from the meeting showed Wednesday.

Previously, the MPC had been split 7-2 in favour of keeping rates unchanged and unanimous on maintaining asset purchases. Hawks Ian McCafferty and Martin Weale had sought a quarter point rate hike at the previous five consecutive meetings.

"What seems to be a greater reluctance by the MPC to consider raising rates has encouraged us to push back our expectation of the timing of the first hike to November this year from August. However we remain hesitant to believe the yield curve, which is not pricing in any tightening in policy until August 2016," wrote Investec analyst Philip Shaw.

Shore Capital analyst Gerard Lane agreed that the Bank of England will delay its rate hike by longer than expected.

"With low inflation and softening labour market conditions we find ourselves in the uncomfortable position of being in line with consensus about the path of interest rates in 2015. We suspect however that the potential scale of fiscal tightening in 2016 will delay the need for rates to increase for longer than currently discounted by markets, and so remain concerned over the value and direction of sterling in coming months," Lane said.

However, Berenberg's chief UK economist Rob Wood believes the market has overestimated the time for when the Bank of England will raise rates.

"On the doveish side, the BoE noted that inflation expectations could ratchet down – a possibility that seems unlikely to us. But on the other hand they highlighted that three temporary factors – energy, food, sterling – explain the bulk of the UK’s low inflation rate today and their influence should fade through the year. We continue to believe the market has cut expectations for BoE rate hikes too far," Wood said.

Going in the opposite direction on interest rates Wednesday, the Bank of Canada announced it is lowering its target for the overnight rate to 0.75% from 1.0%. "This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada," the central bank said in a statement.

Also Wednesday, the UK unemployment rate was reported to have fallen by more than expected in the September to November period, dropping to 5.8% during the September to November period from 6% in the June to August period. Economists had forecast a rate of 5.9%.

During September to November, there were 1.914 million unemployed people in the UK compared with the 1.972 million people in the June to August period. Average earnings rose 1.7% annually after the 1.4% increase in October, in line with the consensus estimate.

Oil prices bounced back, sending oil-related stocks higher. Brent oil hit a high of USD49.56 a barrel, while US benchmark West Texas Intermediate touched USD48.17 a barrel.

BG Group, up 4.3%, closed as the second best performer in the FTSE 100. Tullow Oil ended up 3.9%, and Royal Dutch Shell 'B' shares up 2.3%.

In the FTSE 250, Nostrum Oil & Gas closed up 5.5%, Premier Oil up 4.6%, AMEC Foster Wheeler up 3.3%, and Ophir Energy up 3.2%.

The FTSE 350 Oil and Gas Producers index closed as the second-best performing sector, up 2.8%, just behind Mobile Telecommunications, up 3.3%.

Pearson closed as the best FTSE 100 performer, up 4.9%. The publisher said it expects to report 2014 adjusted earnings per share of 66 pence, at the upper end of its 62 to 67p guidance, because its tax rate will be lower than expected and its North American higher education business and Penguin Random House put in strong performances despite challenging market conditions. It is preliminarily guiding that EPS will rise further to between 75p and 80p in 2015.

Sports Direct International ended down 6.5%, the biggest blue-chip faller. The UK's biggest sporting goods retailer by revenue said founder Mike Ashley sold GBP110.9 million worth of shares, roughly 2.6% of the entire share capital of the company. Ashley sold 15.4 million Sports Direct shares for 720 pence each on Tuesday, reducing his shareholding in the retailer to just over 55.1%. The shares were sold via his MASH Holdings Ltd investment vehicle, which is wholly owned by Ashley.

FirstGroup closed as the best performing FTSE 250 stock, up 7.0%. The rail and bus operator said its overall trading is meeting its expectations, with weakness in its US Greyhound bus operations offset by growth in UK Rail and US First Transit, and its plan to turn around several of its units is continuing to make progress.

The company said it has experienced robust volume and revenue growth in its UK rail operations, and the unit's financial performance is towards the top end of its expectations, while its UK bus business has reported continued volume growth and is making progress with cost savings.

Pets At Home Group was another strong mid-cap performer, up 3.5%. The pet products retailer said it remains on track to meet its full-year expectations, after reporting a rise in revenue in its financial third quarter. The company said revenue in the 12 weeks to January 1 grew 7.8% to GBP182.2 million, buoyed by merchandise revenue growth of 6.5% to GBP168.2 million, with growth in its food segment continuing to outpace accessories, and services revenue growth of 26% to GBP14 million.

Afren, down 19%, was yet again the worst performer in the FTSE 250. The oil and gas company late Tuesday confirmed that it is discussions with its lenders regarding amendments to its existing facilities and is seeking a deferral of a USD50 million amortisation payment that is due at the end of January.

In response to press speculation about a possible financial restructuring, Afren said it has has been reviewing its capital structure, liquidity and funding requirements with its advisers. Additionally, it is reviewing its cost base and capital expenditure plans for 2015 "given the rapid decline in the oil price".

Poundland Group, down 3.6%, was the second-biggest faller in the FTSE 250. The discount retail chain said sales rose by around 10% in the third quarter of its financial year, driven by both existing stores and new store openings, while it also said it saw a "record" Christmas trading period. However, the group's shares were sold off as it said sales from its new stores were lower than the year before, due to delays in openings.

Aside from the ECB monetary policy decision, the rest of the economic calendar Thursday is fairly light. UK public-sector net borrowing for December will be at 0930 GMT, US initial and continuing jobless claims are at 1330 GMT, and eurozone consumer confidence is at 1500 GMT.

In the corporate calendar, Royal Mail Group will issue a trading statement, as will estate agency Countrywide, UK home shopping and education business Findel, and healthcare software and services company EMIS Group. Wealth manager St James's Place is scheduled to release fourth quarter new business results, and specialist lender Paragon Group of Companies will issue an interim management statement.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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