LONDON MARKETS: FTSE 100 Finishes Above 7,500 As Pound Dragged Down By Rate Outlook

By Carla Mozee and Victor Reklaitis, MarketWatch Features Dow Jones Newswires

Vodafone and oil shares rise

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U.K. blue-chip stocks closed at a record Tuesday, aided by downbeat action for the pound despite British inflation hitting its strongest level in more than three years.

The FTSE 100 index rose 0.9% to end at 7,522.03, marking the first time it's closed above 7,500. The London benchmark also had finished at a record on Monday, ending at 7,454.37 (http://www.marketwatch.com/story/oil-mining-shares-lead-ftse-100-toward-another-record-high-2017-05-15).

Sterling and inflation: The FTSE 100's surge above 7,500 came after the pound dropped below $1.29, even as data showed inflation in April increased to 2.7%, the highest since September 2013 (http://www.marketwatch.com/story/uk-inflation-rate-at-fastest-since-2013-2017-05-16). That outstripped expectations for a rise to 2.5%.

"The pound is in the currency market equivalent of a Catch-22. In theory, it should surge on the back of an above-consensus number like this, but in practice interest rates aren't going anywhere and the markets know that," wrote Berry FX founder Richard Berry in a note.

"The Bank of England would sooner tolerate above-average inflation than risk raising rates, which could offer an instant threat to what remains a highly leveraged economy," he said.

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Read more:The pound faces these hurdles as it battles to reclaim $1.30 (http://www.marketwatch.com/story/the-pound-faces-these-hurdles-as-it-battles-to-reclaim-130-2017-05-16)

The Bank of England last week left the benchmark interest rate at 0.25%. Policy makers said inflation could reach to nearly 3% this year, driven by the decline in sterling in the run-up to and after the U.K.'s June 2016 referendum on leaving the European Union. Carney said British households would face tougher conditions this year, as consumer prices rise while the pace of wage growth has slowed.

The pound was buying $1.2914, but fell to an intraday low of $1.2867 after the inflation data. Pound weakness benefits foreign-denominated profit made by multinational companies listed on the FTSE 100. Sterling was at $1.2895 late Monday in New York.

Stock movers: Vodafone shares (VOD.LN) climbed 4% as the telecom forecast profit growth (http://www.marketwatch.com/story/vodafone-forecasts-stronger-profit-growth-2017-05-16-3485299) in the current year after hitting its organic growth target for fiscal 2017. Vodafone also raised its final dividend by 2% but posted an annual loss of 6.1 billion euros ($6.73 billion).

EasyJet PLC shares (EZJ.LN) dropped 7.3% after the budget carrier's six-month net loss widened to 192 million pounds (http://www.marketwatch.com/story/easyjet-loss-deepens-as-brexit-hit-pound-bites-2017-05-16) ($248 million). The airline said weakness in sterling against the dollar and euro shaved GBP82 million off the bottom line.

Oil producers BP PLC (BP.LN) (BP.LN) and Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) were both up 1.1%, adding to their advances on Monday.

Oil prices on Tuesday staying near two-week highs after energy ministers from Saudi Arabia and Russia on Monday said they backed a nine-month extension of OPEC-led production cuts (http://www.marketwatch.com/story/oil-prices-add-to-gains-with-investors-cheered-by-opec-news-2017-05-16).

(END) Dow Jones Newswires

May 16, 2017 11:58 ET (15:58 GMT)