Rolls-Royce and Fed's stance lift UK's FTSE
* FTSE 100 up 0.8 pct, led higher by Rolls-Royce
* Rolls Royce up around 6 pct after share buy-back programme
* World stock markets also buoyed by update from Fed
LONDON, June 19 (Reuters) - Britain's benchmark equity index rallied on Thursday, helped by a surge in aircraft engines maker Rolls-Royce and by the U.S. Federal Reserve which reassured investors over future monetary policy.
The London market tracked gains overnight in U.S. and Asian equity markets, after the U.S. Federal Reserve said the U.S. economy was making progress.
The Fed also hinted at a slightly faster pace of interest-rate increases starting next year, but suggested rates in the long run would be lower than previously indicated.
Britain's blue-chip FTSE 100 index was up by 0.8 percent, or 54.21 points, at 6,832.77 points by the middle of the trading day.
Rolls-Royce rose by 5.6 percent to 1,067 pence to add the most points to the FTSE 100, as analysts and investors welcomed the company's 1 billion pound ($1.69 billion) share buy-back plan.
"There's a lot of support for Rolls-Royce coming in around the 10 pound level, and the buy-back will add more demand for the stock," Dafydd Davies, senior trader at London-based Prime Wealth Group, said.
Some traders remained cautious on the near-term prospects for the FTSE 100, which has not yet hit record highs, unlike the U.S. S&P 500 index and Germany's DAX.
The FTSE 100 is up by 1.1 percent since the start of 2014, lagging gains of 5 percent on the DAX and 6 percent on the S&P.
Some traders are looking to see if the FTSE 100 can get past its previous failures to break the 6,900 point level before betting on the FTSE then hitting record highs of 7,000 points.
"The biggest concern for me is that the FTSE has been lagging other indices so far," Strand Capital managing director Kyri Kangellaris, said.
($1 = 0.5904 British Pounds) (Additional reporting by Sarah Young; Editing by Hugh Lawson and Jane Merriman)