UK's FTSE 100 logs best day in over two months on Wall Street cheer

By Shashwat Chauhan and Shristi Achar A

(Reuters) -The UK's FTSE 100 reversed course and logged its best day in over two months on Tuesday amid a rebound in financial stocks and on rising bets of a slowdown in the U.S. Federal Reserve's aggressive monetary policy tightening.

The blue-chip FTSE 100 gained 1.2% a day after notching its biggest single-day drop of 2.6% in over eight months.

Battered U.S. bank shares rebounded, driving Wall Street's main indexes higher, while a slight slowdown in consumer price growth prompted investors to price in a smaller rate hike by the Fed in March. [.N]

"(Investors) saw how the U.S. reacted to the easing of pressure in the banking system and the CPI numbers and then just followed suit," said Steve Sosnick, chief strategist at Interactive Brokers.

The more domestically focussed FTSE 250 midcap index also ended 1.6% higher.

British banks gained 1.8% a day after they sank 4.9% — their worst one-day drop in over a year and its worst three-day rout since June 2022 — on fears of a fallout from U.S. lender Silicon Valley Bank's (SVB) collapse hitting UK shores.

"Big banks such as Barclays, HSBC have a large presence in the U.S., and if there is another wave of consolidation that does not include failures, the market will realize the larger UK banks might actually be very well positioned," Sosnick added.

Meanwhile, data showed pay growth in Britain lost pace in the three months to January. Investors put a 40% chance on the Bank of England pausing its run of rate hikes at its March meeting next week after the failure of SVB.

Investors will now shift their focus to the UK's spring budget, scheduled for Wednesday.

Among single stocks, Rolls Royce jumped 7% on plans on plans to build the vessels for nuclear-powered attack submarines for Australia.

Airline companies Wizz Air and easyJet gained 7.3% and 4.5% respectively as brokerages JP Morgan and Citigroup improved their outlook for European travel demand.

(Reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by Savio D'Souza, Uttaresh Venkateshwaran and Josie Kao)