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LONDON (Alliance News) - UK share prices were lower midday Thursday following a "crushing disappointment" from the Bank of Japan after it confounded expectations of further economic stimulus by keeping its interest rates on hold.

Governor Haruhiko Kuroda and his board members decided by a 7-2 majority vote to keep the -0.1% interest rate on current accounts that financial institutions maintain at the bank. The bank had introduced negative interest rate in January in order to achieve its 2% inflation target.

The board also decided by an 8-1 majority vote to leave unchanged its target of raising the monetary base at an annual pace of about JPY80 trillion.

Before the decision, the market widely expected the Japanese central bank to ease monetary policy to weaken the yen, which had recently seen a substantial appreciation.

However, following the decision to maintain the status quo, the yen shot higher against the dollar. The dollar started the day at JPY111.44, but following the BoJ's decision fell to a low of JPY107.91.

"The market is punishing the BoJ for not having given even the slightest signal – of whatever kind – of further easing. The only change is that it no longer expects to reach its inflation target in the first half of the fiscal year 2017 but 'during fiscal 2017'," said currency analysts at Commerzbank.

The analysts said this was the fourth postponement in about one year, making the inflation target "seem ridiculous".

Economists at Nomura noted that the BoJ did not cite lower energy prices as the main reason for revising down its inflation outlook.

"That the Policy Board revised down its inflation forecast while not substantially changing its energy price assumption implies that the BOJ's view on CPI excluding fresh food and energy prices, which it has been watching closely, has become more cautious," Nomura said.

The surprise decision not to add stimulus hurt Japanese equities, with the Nikkei 225 index closing down 3.6%. Elsewhere in Asia, the Shanghai Composite ended down 0.3%, and the Hang Seng index in Hong Kong rose 0.1%.

In London, the FTSE 100 index was down 1.0%, or 62.95 points, to 6,256.96 at midday. The FTSE 250 was down 0.7% at 16,970.41, and the AIM All-Share was down 0.2% at 727.96.

European stocks were trading lower, with the CAC 40 in Paris down 1.4% and the DAX 30 in Frankfurt down 1.3%.

Futures in New York pointed to a lower open for Wall Street. The DJIA was indicated down 0.7%, the S&P 500 down 0.8%, and the Nasdaq 100 down 0.5%.

"In the face of such crashing disappointment from the BoJ, Facebook's good numbers last night may get drowned out, but they still prove that this social network still has the magic formula where money-making is concerned," said Chris Beauchamp, senior market analyst at IG.

The social network giant reported a surge in first-quarter profit, driven largely by a 52% jump in revenues, on Wednesday after the closing bell. Both earnings and revenues trounced Wall Street estimates, sending shares up by 6% in the after-hours trading.

The California-based company's first-quarter profit surged to USD1.51 billion, or USD0.52 per share, from USD512 million, or USD0.18 per share last year.

US investors also will digest the statement from the US Federal Reserve on Wednesday, as it kept its monetary policy unchanged. The Federal Open Market Committee voted 9-1 to keep the Federal Funds rate target at a range of 0.25% to 0.5%.

The central bank's accompanying statement was generally interpreted as leaving the door open for a June US interest rate hike without making any guarantees.

The FOMC removed a reference to the risks posed by global economic and financial developments, but acknowledged weakness in the domestic economy.

"Economic activity appears to have slowed," the statement read. "Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high."

Craig Erlam, senior market analyst, at Oanda said the improvement in the global financial environment suggests that a US interest rate hike in June "will be entirely dependent on the performance of the domestic economy".

One key indicator of the health of the US economy will be the first reading of first quarter GDP at 1330 BST. The consensus estimate, according to FX Street, points to a considerable slowdown in growth to just 0.7% year-on-year from 1.4% in the fourth quarter of 2015. On a quarterly basis, GDP is expected to grow 0.7%, from a rise of 0.9% in the previous quarter.

Also released at the same time is the preliminary reading of personal consumption expenditure and weekly initial and continuing jobless claims. Before that, the German consumer price index is at 1300 BST and the Kansas Fed manufacturing activity at 1600 BST.

Back in the UK, stocks going ex-dividend - meaning new buyers no longer qualify for the latest dividend payment - were exacerbating the losses on the London Stock Exchange.

Broadcaster ITV, down 5.0%, life insurer and investment manager Legal & General Group, down 5.3%, and theme park and attractions operator Merlin Entertainments, down 3.1%, were the worst performers in the FTSE 100 index.

Amongst the biggest fallers in the mid-cap FTSE 250 index were defence technology company Cobham, down 7.5%, specialty chemicals company Elementis, down 4.9%, and interdealer broker Tullett Prebon, down 4.9%.

Lloyds Banking Group said its first-quarter pretax profit fell by almost half, hit by market volatility and the cost of redeeming expensive debt with the aim of boosting interest margins.

Pretax profit fell to GBP654 million in the three months ended March 31, Lloyds said in a statement, from GBP1.21 billion the corresponding quarter a year earlier.

Underlying profit, which excludes costs related to redeeming the so-called enhanced capital notes and market volatility, fell by 5.7% to GBP2.05 billion.

Redeeming the enhanced capital notes costs the bank GBP790 million in the quarter, while market volatility and asset sales cost GBP203 million. The stock traded down 1.9%.

Anglo American was the best performer in the FTSE 100, up 2.7%. The miner struck a deal to sell its niobium and phosphates businesses to China Molybdenum Co for a total cash consideration of USD1.50 billion as it continues to progress its restructuring and debt reduction plans.

Anglo is downsizing its business and offloading its non-core business units, and the niobium and phosphates businesses were one of the first to be put up for sale as part of the company's restructuring programme, alongside coal, iron ore and nickel assets.

The significant downsizing will eventually lead to Anglo American focused solely on its stake in diamond giant De Beers, its copper segment, and its platinum arm, which is conducted through Anglo American Platinum.

Victrex shares traded down 6.6% after the polymer products company entered into a consent decree with the US Federal Trade Commission concerning the inquiry into the sale and marketing of implantable grade PEEK polymer in the US by the group's subsidiaries, Invibio Inc and Invibio Ltd.

The consent decree will apply to all of Invibio's existing and future customer contracts, Victrex said, and means Invibio is unable to enter agreements or engage in practices that require its customers to purchase PEEK, a colourless thermoplastic polymer, exclusively at or beyond the device level from Invibio. Victrex noted there are exceptions for certain circumstances, including where Invibio is working with its customers on custom components or in joint developments.

Tullow Oil was the biggest gainer in the FTSE 250, up 9.8%. The oil and gas explorer said production in the first quarter of the year was "marginally below expectations" due to the issues faced at the Jubilee field offshore Ghana, but said the field should resume production in a matter of days.

The problems at Jubilee mean full-year production is "likely to be below current guidance" of 73,000 to 80,000 barrels of oil per day, and that guidance will be revised downward once the field is back up and running, the company said.

Elsewhere, Tullow's major TEN development in Ghana remains on track and is over 90.0% completed, with first oil expected sometime in July or August this year.

In the AIM market, shares in Goldstone Resources soared 66% to 2.753 pence after securing investment from two fellow London-listed firms, Metal Tiger and Red Rock Resources.

Together, Metal Tiger and Red Rock have acquired a total of 12.0 million shares in Goldstone at a price of 1.87 pence each, which is equal to a 19.29% stake in Goldstone. Metal Tiger and Red Rock have split those shares in half, meaning they have acquired 6.0 million shares in Goldstone each.

The combined value of the deal is GBP225,000, with Metal Tiger and Red Rock each liable for half. That consideration is payable half in cash and half in Red Rock shares, meaning Metal Tiger is paying all in cash. Metal Tiger traded up 1.4% and Red Rock up 11%.

Meanwhile Herencia Resources was down 46% after the miner said Next Minerals has pulled out of a deal to buy the Picachos copper project in Chile, leaving Herencia close to running out of cash.

Herencia struck a deal to sell the project to Next Minerals in February but faced opposition to the agreement from some shareholders. On Thursday, Next Minerals pulled out.

Herencia said if the Picachos licence option is not renewed, the company will lose all rights to the asset but will have enough working capital to last until the end of May. If the licence is renewed, Herencia will only have enough working capital to last until early May. The company said it has withheld the option payment as it "considers all options".

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

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