LONDON MARKETS: FTSE 100 Drops To 4-month Low As Pound Soars To Highest Since Brexit Vote

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Sterling on track for best week since June after BOE signals a rate hike is coming

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U.K. stocks slumped to its lowest level in four months on Friday, pressured by a rally in the pound after a super-dovish Bank of England member hinted interest rates could rise in coming months.

The FTSE 100 index slid 1.3% to 7,202.10, setting it on track for its lowest close since early May, according to FactSet figures. For the week, the blue-chip benchmark was headed for a 2.4% gain, the biggest since mid-August.

Meanwhile, the pound soared to its highest dollar value since the U.K.'s Brexit vote (http://www.marketwatch.com/story/ballistic-pound-shoots-up-to-highest-level-since-brexit-vote-2017-09-15) in June last year on increased expectation the BOE will raise rates by the end of the year. Sterling bought $1.3617, up from $1.3398 late Thursday in New York.

A higher U.K. currency tends to slam the FTSE 100 lower, as it impacts the earnings of the index's many multinational companies that make a bulk of their money overseas.

Gertjan Vlieghe, traditionally one of the most dovish members on the Monetary Policy Committee, said in a speech that rates may need to go up in "coming months."

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"Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise," he said in the speech (http://www.marketwatch.com/story/boe-dove-vlieghe-now-sees-need-for-rate-hike-2017-09-15).

His comments follow a hawkish message from the BOE's meeting on Thursday, where the central bank signaled it was preparing to raise interest rates (http://www.marketwatch.com/story/boe-says-it-may-hike-interest-rates-within-months-2017-09-14) over the coming months to rein in rising inflation.

"Massive stops got triggered at the $1.35 level, and the move from $1.3499 to $1.3515 was ballistic," said Naeem Aslam, chief market analyst at Think Markets UK, in a note on Friday. Vlieghe made it clear that a rate hike could be only months away, and the market "has woken up to this reality," Aslam added.

Interest rates on U.K. government bond also rose, with the yield on 10-year paper climbing 12 basis points to 0.762%, according to trading platform Tradeweb.

Traders on Friday were also spooked by the latest provocation from North Korea. The isolated nation early Friday local time fired a missile over northern Japan (http://www.marketwatch.com/story/un-security-council-to-hold-emergency-meeting-after-latest-north-korean-missile-test-2017-09-14) for the second time in a month, a day after saying it wanted to sink the American ally with a nuclear bomb.

Stock movers: Miners were among biggest decliners, building on losses from Thursday that came after some disappointing Chinese data (http://www.marketwatch.com/story/chinas-industrial-output-grows-less-than-expected-2017-09-14).

Shares of Rio Tinto PLC (RIO) (RIO) (RIO) lost 1.3%, Anglo American PLC (AAL.LN) gave up 1.9%, and Glencore PLC (GLEN.LN) fell 1.7%.

Off the blue-chip index, shares of J.D. Wetherspoon PLC (JDW.LN) rose 11% after the U.K. pub operator reported a rise in profit (http://www.marketwatch.com/story/wetherspoon-profit-rises-maintains-dividend-2017-09-15) and maintained its full-year dividend.

(END) Dow Jones Newswires

September 15, 2017 07:04 ET (11:04 GMT)