By Shashwat Chauhan and Johann M Cherian
(Reuters) -UK's FTSE 100 closed higher on Thursday with banks and homebuilders among top gainers, while data showing a surprise decline in U.S. inflation cemented hopes of smaller rate increases by the Federal Reserve.
The blue-chip FTSE 100 gained 0.9% to hover near more than four-year highs scaled on Wednesday.
Data from the U.S. Labor Department showed monthly consumer prices fell for the first time in more than two-and-a-half years, stoking hopes that the Fed would gradually steer away from its hawkish rhetoric.
"The stock market has welcomed signs of cooling inflation as a leading indicator of an inflection point in policy interest rates, which were a big headwind to stock prices in 2022," Bill Adams, chief economist at Comerica Bank, said.
Financial stocks soared with HSBC, Barclays and Prudential Financial jumping more than 2% each.
"Central banks are still expected to raise rates but there is a feeling that consumers and companies are showing resilience," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
"Perhaps they (banks) won't have to put aside too much bad debt and ... their exposure to loans may not be so significant."
Homebuilders jumped 5.8% after Persimmon Plc topped its home sales guidance in 2022 even as fears of a recession and housing market slowdown loom. Persimmon shares jumped 8.3%.
The FTSE 100 has risen in seven out of the eight sessions since the start of the year. Last year, it outperformed major global peers on the back of a rally in commodity prices.
The FTSE 250 mid-cap index closed 1.6% up, with ASOS surging 20.9% after the online fashion retailer said it was making good progress with plans to improve profitability.
Halfords slumped 18.7%, its biggest single-day decline since June 2020, after the motoring and cycling parts retailer trimmed its annual profit outlook.
(Reporting by Shashwat Chauhan and Johann M Cherian in Bengaluru; Editing by Subhranshu Sahu and Andrew Heavens)