FTSE 100 extends gains as BoE hikes rate but outlook clouded

March 17 (Reuters) - UK's FTSE 100 extended gains on Thursday, as oil majors lifted the commodity-heavy index, while the Bank of England raised interest rates as expected and struck a less hawkish tone on further hikes.

The FTSE 100 climbed 1.3% with oil majors Shell and BP gaining 3.2% and 2.1%, respectively, tracking a rally in crude prices over supply concerns.

The domestically focused mid-cap index rose 0.3%.

Shares in global companies including Diageo and British American Tobacco rose - in their case by 2.8% and 1.2% respectively - while sterling weakened on the rate hike news.

The BoE raised Bank Rate to 0.75% from 0.5%, its third consecutive hike since the COVID-19 pandemic, to rein in fast-rising inflation, but softened its language on the need for more increases.

Policymakers pushed back against investors' bets that Bank Rate will rise sharply to around 2% by the end of this year.

"Clearly the deteriorating growth outlook is becoming more of a concern to the MPC, and the easing off on the monetary tightening accelerator evidences this," Stuart Cole, head macro economist at Equiti Capital, said.

"The MPC may also be recognising that current inflationary pressures are largely supply-side driven and as such there is little the MPC can do to fight them."

The UK's commodity-heavy benchmark index has outperformed its European peers as investors embraced commodity stocks to protect their portfolios from the impact of supply shortages and soaring inflation.

Banks edged lower as investors saw the central bank's stance on further monetary tightening to be less hawkish than expected.

"In the longer run, we expect them to benefit from higher interest rates, though rising inflation pressures could tame appetite," Ipek Ozkardeskaya, senior analyst at Swissquote, said.

The BoE said inflation was set to reach around 8% in April, almost a percentage point higher than it forecast last month, and warned it could rise further later in the year.

Among individual stocks, Ocado Group fell 8.2% after Ocado Retail, its joint venture with Marks & Spencer cut its annual sales forecast. (Reporting by Amal S and Bansari Mayur Kamdar in Bengaluru; Editing by Anil D'Silva, Vinay Dwivedi and Andrew Heavens)