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LONDON (Alliance News) - UK stock indices ended higher Wednesday, buoyed by economic data, while the pound jumped to a near four-and-a-half-year high against the US dollar as UK unemployment reached its lowest level in five years.

Stocks opened positively after Chinese GDP data released overnight showed the economy growing at 7.4% year-on-year in the first quarter, slightly faster than the 7.3% growth economists had expected. The figure was blow the Chinese government's stated target of 7.5% growth, leaving open the possibility of further Chinese monetary stimulus.

The positive tone in the London equity markets continued throughout the day, with a steady open on Wall Street helping.

The FTSE 100 closed up 0.7% at 6,584.17, the FTSE 250 up 1.0% at 15,745.98, and the AIM All-Share up 0.7% at 823.92.

In Europe, the CAC 40 in Paris closed up 1.4% and the DAX in Frankfurt closed up 1.6%.

The pound rallied to a near four-and-a-half year high against the dollar, peaking at USD1.6818 Wednesday, after some very strong unemployment and wage data. Sterling was trading at USD1.6800 at the close of the London equity markets.

The UK unemployment rate fell to 6.9% in the three months to February, down from 7.15% in January, and the first drop below 7.0% for five years. It is also the first time the headline unemployment rate has fallen below the Bank of England's original forward guidance threshold of 7.0%.

Bank of England Governor Mark Carney has since dropped the single target policy for considering an interest rate rise in favour of targeting spare capacity in the economy, but whatever slack there is also appears to be getting used up fast as data also suggested real wages in the UK grew for the first time in four years.

Average earnings including bonuses rose by 1.7% in February, up from a 1.4% increase in January. The news follows the release of UK consumer price inflation data Tuesday that showed prices rising at 1.6%, which means that real wages are growing for the first time in many years, something that many see at the final chapter in the UK economic recovery.

"George’s marvellous medicine certainly seems to be doing the trick. This is the news that households have been aching for over the past few years," said UFXMarkets managing director Dennis de Jong, referring to UK Chancellor of the Exchequer George Osborne.

The data raises questions for Carney and his colleagues on the central bank's rate-setting committee, including whether they will introduce a new form of guidance after the April 9-10 policy meeting. The minutes of the March meeting are due out next Wednesday.

"Although this might at first sight look like a Goldilocks release for the BoE, neither too hot nor too cold, the rapidly tightening labour market and signs of a booming economy makes record low interest rates increasingly unnecessary and unsustainable," said Berenberg Chief UK Economist Rob Wood.

Forex.com Research Director Kathleen Brooks agreed that the BoE needs to keep a close eye on wage inflation. "If we see further gains in the coming months then the Bank may have no choice but to raise rates sooner than the market expects," she said.

Better-than-expected US industrial production data gave an afternoon boost to the dollar, keeping the pound from pushing up further. Production increased by 0.7% month-on-month in March, down from the 1.2% growth in January, but better than the 0.5% increase expected.

Afternoon Federal Reserve speakers also brought some strength back into the dollar, with Atlanta Fed President Dennis Lockhart saying that current market data supports his view that the US should make its first interest rate rise in the second half of 2015.

It looks likely that the debate will intensify in coming months over which of the major central banks will be the first to raise rates, although the latest eurozone inflation data only makes the European Central Bank further removed from that argument.

The eurozone's year-on-year CPI figure for March was revised down to 0.7% Wednesday, from the original print of 0.8%, confirming a slowdown from the 1.0% recorded in February.

Still, the euro held up against the dollar, trading broadly flat at the close of the European equity markets at USD1.3810.

Within UK equities, the FTSE 350 Food & Drug Retail sector index gained 1.9%, led higher by Tesco after the UK's biggest supermarket reported full-year results ahead of analyst expectations. Although the group reported a second consecutive year of trading profit decline, to GBP3.31 billion from GBP3.53 billion, the result was ahead of the consensus expectation for GBP3.24 billion and the shares closed up 3.0%.

Analysts were impressed with Tesco's international performance, although the UK environment, where the big names are losing market share to the discount retailers, remains extremely challenging. Tesco suggested that the GBP200 million investment in price cuts that it laid out in February will be just the start of the group's plan to regain competitiveness in the UK.

"GBP200 million was just the start, and you will see more coming. We have a big and bold plan, and customers will be getting better value in 2014," Chief Executive Philip Clarke said.

Sports Direct International was the stand out blue chip gainer, closing up 5.6% after getting a positive write up from Bank of America Merrill Lynch. Analysts at the bank increased their price target on the stock to 1,070p, from 1,000p, saying that the market is underestimating the potential for international and online growth. Sports Direct now derives about 20% of sales internationally, which BoAML expects to rise to 40% over the next ten years.

Hargreaves Lansdown closed among the biggest fallers, closing down 1.0% despite an initially positive start, after releasing third quarter results. The retail stock broker increased its assets under administration by GBP1.83 billion over the period, leading analysts to suggest it has seen no negative impact from the retail distribution review. Even so, Numis securities reduced its earnings per share forecasts for the current year by 2.0% due to lower revenue yields and marking to market of current assets.

A number of FTSE 100 stocks went ex-dividend, with BAE Systems closing as the biggest faller, down 4.1%, and Smith & Nephew down 1.3%. In the FTSE 250, Lancashire Holdings was the worst performer, closing down 5.3% after going ex a 30 pence dividend.

The Ukraine crisis is also still threatening to derail the markets. NATO decided to step up its presence in Ukraine, amid reports of Ukrainian troops defecting to join pro-Russian separatists who have been controlling part of the eastern city of Kramatorsk. The defence block says it still hopes that a political solution can be found.

Still to come Wednesday, US technology giant Google announces its first quarter results after Wall Street closes, while Janet Yellen is due to speak at the Economics club of New York at 1615 GMT, and the Fed's Beige Book of economic conditions will be released at 1800 GMT.

It's a much quieter day for economic data on Thursday, with latest UK mortgage lending figures from the Council of Mortgage Lenders due at 0830 GMT. A Japanese consumer confidence survey released overnight may provide some direction for Asian markets, while US initial jobless claims will be released in the afternoon.

In the UK corporate calendar, interim trading statements are expected from Diageo, Ferrexpo, Sepura, Lavendon Group, and Haynes Publishing.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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