June 19, 2014 / 8:10 AM / 4 years ago

UK's FTSE rallies as Rolls-Royce races higher

* FTSE 100 up 0.7 pct, led higher by Rolls-Royce

* Rolls Royce up 6 pct after share buyback programme

* World stock markets also buoyed by update from Fed

By Sudip Kar-Gupta

LONDON, June 19 (Reuters) - Britain’s benchmark equity index rallied on Thursday, lifted by Rolls-Royce after the aircraft engines maker surged on the back of its plans for a 1 billion pound ($1.69 billion) share buyback.

The London market was also lifted by gains overnight on the 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 it had indicated previously.

Britain’s blue-chip FTSE 100 index was up by 0.7 percent, or 45.60 points, at 6,824.16 points in early session trading.

Rolls-Royce rose by 6.1 percent to 1,072 pence to add the most points to the FTSE 100 index as analysts and investors welcomed the company’s share buyback plans.

“It was a positive announcement by Rolls-Royce, but I’ll be looking to see if the stock can break above the 1,080 to 1,100 pence level before I go more bullish on them,” said Central Markets trader Joe Neighbour.

However, 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,” said Strand Capital managing director Kyri Kangellaris. ($1 = 0.5904 British Pounds) (Additional reporting by Sarah Young; Editing by Hugh Lawson)

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