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LONDON (Alliance News) - UK stocks had lost their early vigour by midday Thursday as the prospects of negative interest rates in Norway hit bank stocks, offsetting the positive effect on equities in general of a dovish US Federal Reserve statement on Wednesday.

Meanwhile, as expected, the Bank of England's monetary policy committee voted unanimously to keep UK interest rates on hold at 0.50% and stock of purchased assets unchanged.

Norway's central bank slashed its key interest rate to a new record low on Thursday, citing the weaker economic outlook, and said the rate may be cut further this year. The bank also said that the policy rate could turn negative if the economy is exposed to new major shocks.

The Executive Board of the Norges Bank reduced the key policy rate by 25 basis points to 0.50%, in-line with economists' expectations.

"Growth prospects for the Norwegian economy have weakened somewhat and inflation is expected to moderate further out," Norges Bank Governor Oystein Olsen said.

"The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year," the Norwegian central bank chief added.

If the Norges Bank was to cut its interest rate into negative territory, it would join company with the Bank of Japan, European Central Bank and the Swiss National Bank. The Bank of England, however, has all but ruled out such a more.

The Swiss National Bank maintained its expansionary monetary policy Thursday and repeated that it will remain active in the foreign exchange market. The interest rate on sight deposits at the central bank was maintained at -0.75%, and the target range for the three-month libor between -1.25% and -0.25%.

The negative interest rate together with the willingness of the SNB to intervene in the foreign exchange market serve to ease upward pressure on the Swiss franc, the bank said. The monetary policy is thus helping to stabilize price developments and underpin economic activity, it said.

The SNB continues to expect that inflation will re-enter positive territory in the coming year, but for 2016, the bank lowered its consumer price index forecast to a 0.8% fall from its previously projected 0.5% decline.

"Bank shares do especially not like the prospect of negative rates in Norway nor the rally in the euro. The STOXX Europe 600 Bank index fell over 1.5% Thursday morning with multiple Italian bank stocks getting halted and HSBC and RBS near the bottom of the FTSE 100," said Jasper Lawler, market analyst at CMC Markets.

HSBC Holdings was down 2.3%, Barclays down 2.3%, Royal Bank of Scotland down 2.2% and Standard Chartered down 1.4%.

The FTSE 100 was 0.2%, or 11.93 points, lower at 6,163.56. The FTSE 250 was flat at 16,748.21 and the AIM All-Share was down 0.3% at 708.05.

Ahead of the open on Wall Street, futures pointed the DJIA and S&P 500 both down 0.3% and the Nasdaq 100, down 0.4%.

In Europe, the CAC 40 in Paris was down 1.4% and the DAX 30 in Paris down 1.7%.

Eurozone consumer prices declined for the first time in five months in February as initially estimated, final data from Eurostat showed.

The harmonized index of consumer prices fell 0.2% year-on-year following a 0.3% rise in January. The annual rate matched the flash estimate published on February 29. The latest decline was the first since September and the biggest since February 2015, when prices slid 0.3%.

The core HICP that excludes fresh food, alcohol and tobacco and energy prices rose 0.8% annually after a 1% increase in the previous month.

The euro and pound continued to march higher against the dollar. The greenback was sold late Wednesday when the Federal Reserve left its benchmark interest rate unchanged and said it only expects to raise US rates twice in 2016, having predicted four hikes in its December meeting.

The dollar's decline supported commodity prices, with gold trading at USD1,267.00 an ounce, up from USD1,228.57 at the London stock market close on Wednesday.

"The Fed's latest utterances suggest to us that another 0.25% hike in June is now less likely (albeit not yet off the table), and that there will be at most one or two rate hikes in 2016. In our view, this is short-term positive for metal prices," said Yuen Low analyst at Shore Capital.

"Our stance has been and still remains that the dollar effect has essentially been neutered, and that metal price moves should be rather more reflective of Chinese and global macroeconomic and political developments," Low added.

Mining stocks were amongst the best performers in the FTSE 100, with Glencore up 9.2%, Anglo American, up 9.1% and Fresnillo, up 6.5%.

At the other end of the index, ex-dividend stocks were weighing down the FTSE 100. British American Tobacco was down 2.8% and property developer Hammerson was down 2.1%.

In the FTSE 250, OneSavings Bank shares led the gainers, up 12%. The specialist lender said pretax profit shot higher in 2015 as lending grew and its cost-income ratio improved further.

OneSavings said pretax profit for the year to the end of December grew to GBP105.3 million from GBP63.7 million a year earlier. This was helped by costs associated with its listing in London in June 2014 not repeating.

The company will pay a final dividend of 6.7 pence per share, taking its total payout for the year to 8.7p, in line with its target dividend policy.

Private hospitals operator Spire Healthcare Group, up 3.5%, swung to a pretax profit in 2015 due to a significant fall in one-off costs, as revenue ticked higher.

Spire said it made a pretax profit of GBP73.6 million in the year to the end of December, compared to a GBP7.0 million loss a year earlier when it booked exceptional costs related to restructuring, hospital closures and regulatory and governance costs. It also booked significant finance costs a year earlier due to its listing in London in July 2014.

Spire said it will pay a final dividend of 2.4 pence per share, up from 1.8p a year earlier. As it paid an interim dividend in 2015, which it did not in 2014 due to its listing, its total dividend more than doubled to 3.7p from 1.8p.

Premier Farnell was the worst performer in the FTSE All-Share, down 6.2%. The technology products distributor said its pretax profit sank in its recently-ended financial year due to a margin squeeze caused by a strong dollar, pricing pressure and a less-favourable sales mix.

The company said its pretax profit for the year to the end of January was GBP29.2 million, compared to GBP54.1 million a year earlier, even though revenue increased to GBP982.7 million from GBP960.1 million.

The profit line took a hit from the group's gross margin declining to 34.4% from 36.8%. The group also booked costs related to the sale of its Akron Brass business, which it offloaded in March 2015 for USD224.2 million.

Pathfinder Minerals shares rose after the company raised GBP200,000 from a subscription of shares, half of which were taken up by Chief Executive Nick Trew.

The company said it raised the funds through a subscription of over 24.0 million shares in the company at a price of 0.8325 pence each, which is a 10% discount to the closing share price on Wednesday.

Pathfinder shares were up 66% to 1.54 pence per share on Thursday, making the stock the best performer in the AIM All-Share.

Still ahead in the economic calendar, US current account and continuing and initial jobless claims are at 1230 GMT, alongside the Philadelphia Fed manufacturing Survey. US JOLTS job openings and the Conference Board leading indicator are at 1400 GMT.

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

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