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LONDON (Alliance News) - UK shares gave back some of their early gains on Thursday but still ended higher amid weak trading on Wall Street, one day after the Federal Reserve gave a boost to global stocks by lifting US interest rates but striking a doveish tone for the future.

The FTSE 100 index ended up 0.7% at 6,102.54 points, the FTSE 250 up 0.6% at 17,177.28 and the AIM All-Share up 0.5% at 722.04.

In Europe, the French CAC 40 added 1.1% and the German DAX 30 rose 2.6%. In Tokyo, the Nikkei 225 index ended up 1.6%, while the Hang Seng in Hong Kong added 0.8% and the Shanghai Composite 1.8%.

US stocks, which already rallied on Wednesday after the Fed's decision, opened higher Thursday but headed south shortly after the bell.

On Wednesday, the Dow Industrials added 1.3%, the S&P 500 up 1.5%, and the Nasdaq Composite up 1.5%. At the London close on Thursday, the Dow was down 0.7%, the S&P down 0.9% and the Nasdaq down 0.7%.

The US Federal Open Market Committee was unanimous in its decision to raise the target for Fed Funds rates by 25 basis points to 0.25% to 0.50% from 0% to 0.25%. Looking further out, the Fed sees only "gradual" rate hikes in 2016, according to its so-called 'dot plot' of FOMC member forecasts. From there, the policy makers expect even slower rate hikes in 2017-2018.

In its statement, the Fed said it will "assess realized and expected economic conditions relative to its objectives of maximum employment and two-percent inflation" to decide upon further interest rate changes. The FOMC expects economic conditions to support gradual increases to interest rates, but this will depend on incoming economic data.

The Fed's statement also acknowledged the inflation rate in the US has remained well below its 2.0% target, partly due to declining energy prices, but expect inflation to reach its target in the medium-term.

In her press conference, Fed Chair Janet Yellen said the interest rate rise recognises the "considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans. And it reflects the committee's confidence that the economy will continue to strengthen."

Eric Lascelles, chief economist at RBC Global Asset Management, said the main message is that the Fed has succeeded in lifting rates without disrupting markets too much, with the central bank's positive assessment of the economy paired with "fairly dovish" guidance at least relative to expectations.

Lascelles said it is "quite unlikely" that the Fed will raise rates at its next meeting on January 27. Instead, he believes the Fed's 'dot plot' suggest that a pattern of every second meeting is the default assumption. For Lascelles, the March 16 policy meeting merits closer attention.

"That said, we think there is a fair chance that tightening is spaced even more widely than this, depending on economic and financial developments," Lascelles added.

Supporting the Fed's view that the US economy is strengthening, the US Labor Department released a report showing a pullback in initial and continuing jobless claims in the week ended December 11.

The report said initial jobless claims fell to 271,000, a decrease of 11,000 from the previous week's level of 282,000. Economists had expected jobless claims to pull back to 275,000.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also dipped by 7,000 to 2.238 million in the week ended December 4. However, it missed expectations for a drop to 2.220 million.

Meanwhile, the US Conference Board released a report showing its leading US economic indicators index rose by more than expected in November, with building permits, the interest rate spread, and stock prices driving the improvement. The Conference Board's leading economic index climbed by 0.4% in November after a 0.6% increase in October, coming in ahead of economists expectations for an 0.2% rise.

The dollar strengthened further against the pound and the euro, which had already lost ground against the greenback, even after positive UK retail sales and eurozone construction output data.

At the London close, the pound was at USD1.4885, having stood at USD1.5002 at the close on Wednesday. The euro was at USD1.0818, compared to USD1.0942 at the close on Wednesday.

UK retail sales expanded 1.7% in November from October, when they fell 0.5%, the Office for National Statistics said. Economists had forecast a 0.5% rise for November. Month-on-month sales excluding auto fuel also climbed 1.7%, with economists having expected it to rise by 0.6%.

On a yearly basis, retail sales volume including auto fuel increased 5%, faster than the 4.2% growth posted in October. Growth was forecast to slow to 3%. Excluding auto fuel, growth in sales improved to 3.9% from 3.2% in the prior month, while it was expected to ease to 2.3%.

Eurozone construction output increased in October after falling in the previous month, figures from Eurostat showed Thursday. Seasonally adjusted construction output climbed 0.5% month-on-month in October, reversing a 0.7% decrease in September, which was revised from a 0.4% drop. In August, output had risen the same 0.5%.

On an annual basis, construction output rose 1.1% in October, much faster than the 0.1% gain in the preceding month, revised down from 1.8%. It was the second successive monthly hike.

Brent oil went back below USD38, standing at USD37.19 at the London close, while West Texas Intermediate was priced at USD34.76 at the close.

Gold was also under pressure, quoted at USD1,052.20. This sent shares in gold miners Fresnillo and Randgold Resources down 2.8% and 1.6%, respectively. Other miners also ended in the red, with Anglo American down 0.3%, Glencore down 1.0% and Rio Tinto down 1.8%.

At the other end of the blue-chip index, banks were among the best performers after the Fed move. The FTSE 350 Banks sector index ended firmly in the green, up 2.3%, as higher interest rates can benefit banks' net interest margins, a key driver driver of profit.

Standard Chartered ended up 7.5%, HSBC Holdings up 2.2%, Royal Bank of Scotland Group up 1.7%.

Capita ended up 2.7% after Deutsche Bank upgraded the blue-chip outsourcer to Buy from Hold, saying its returns will be more attractive relative to its peers in 2016. Late on Wednesday, Capita announced that its offer for Xchanging had lapsed, as it failed to reach the required level of acceptances in the face of a higher offer from Computer Sciences Corp.

In the FTSE 250, Domino's Pizza Group added 5.6%, benefited from an upgraded to Buy from Hold by Berenberg. The broker cited continuing sales momentum in the UK, positive developments in Germany, and a recent pullback in Domino's Pizza shares. Domino's on Tuesday said it has formed a joint venture to acquire Joey's Pizza, the largest pizza delivery operator in Germany, for up to EUR79.0 million.

Entertainment One closed up 3.2%. The Peppa Pig owner said it has created a new partnership, forming a new film, television and digital content creation company, Amblin Partners, in association with director Steven Speilberg and others. This extends the company's existing output agreement with studio DreamWorks pictures. Under the agreement Entertainment One will directly distribute Amblin Partner's films, and it will hold a small equity stake in Amblin Partners.

Elementis ended down 6.6%, after the speciality chemicals company warned its earnings per share for 2015 are now projected to be at the lower end of market expectations as challenging markets continued.

However, the company said it still expects its year-end net cash balance to be higher than the previous year balance of USD64.2 million. Elementis said its operating profit in 2015 has benefited from around USD5 million in one-off gains related to legal settlements and property easements which will not be repeated in 2016.

In a light corporate calendar Friday, Goodwin publishes half-year results and Jersey Electricity issues full-year results.

In the economic calendar, China's house price index is due at 0130 GMT, while the Bank of Japan announces its interest rate decision at 0300 GMT, followed by a press conference at 0500 GMT. Eurozone current account data are due at 0900 GMT. In the US, Markit services and composite Purchasing Manager's Index is due at 1445 GMT, while Richmond Federal Reserve President Jeffrey Lacker gives a speech at 1800 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com

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